The Warner Bros. Discovery board unanimously told shareholders on Wednesday to reject the latest iteration of Paramount Skydance’s takeover bid in favor of Netflix’s rival offer.
Depending on what Paramount decides next, the move could prolong the bidding war for the Hollywood powerhouse studio even further. But one thing is for certain: The Warner Bros. Board of Directors intends to stick with Netflix’s bid.
The board described Paramount’s offer as “inferior” and “insufficient” compared to Netflix’s offer.
“Paramount’s offer continues to provide insufficient value, including terms such as an extraordinary amount of debt financing that create risks to close and lack of protections for our shareholders if a transaction is not completed,” Warner Bros. Board of Directors chairman Samuel Di Piazza Jr. said in a statement. “Our binding agreement with Netflix will offer superior value at greater levels of certainty, without the significant risks and costs Paramount’s offer would impose on our shareholders.”
In an accompanying letter explaining the studio’s decision, the board said there is too much debt and other uncertainties surrounding Paramount’s “leveraged buyout.” The board also expressed concern about the operating restrictions on its ability to modify, renew, or terminate affiliation agreements under the Paramount offer.
“These restrictions may hamper WBD’s ability to perform and could lead PSKY to assert that WBD has suffered a ‘material adverse effect,’ enabling PSKY and its financing partners to terminate the transaction or renegotiate the terms of the transaction,” the letter stated.
Late last month, Paramount amended its hostile bid with a personal guarantee from Oracle co-founder Larry Ellison that he would provide $40.4 billion of the equity financing for the deal and any damages claims against Paramount. The billionaire is the father of Paramount CEO David Ellison and an ally of President Donald Trump, who remains a wildcard in the merger between Netflix and Warner Bros.
The board didn’t directly address the Ellison-backed equity guarantee.
Additionally, Paramount offered a $5.8 billion payment to Warner Bros. shareholders if federal regulators block the pending deal. The proposed payout matches Netflix’s breakup fee in the event of the merger’s termination, but Warner Bros. calculated that Paramount’s breakup fee would leave it with a net amount of $1.1 billion when accounting for all expenses. Therefore, Warner Bros. would receive a higher net amount from Netflix.
Paramount is seeking to buy the entirety of Warner Bros., including its cable networks such as CNN, while Netflix only wants to purchase the company’s studio and streaming businesses. Paramount’s bid is valued at $108.4 billion, and Netflix’s offer is valued at $82.7 billion.
In a statement released Wednesday, Netflix backed Warner Bros. in its rejection of the hostile bid.
“The WBD Board remains fully supportive of and continues to recommend Netflix’s merger agreement, recognizing it as the superior proposal that will deliver the greatest value to its stockholders, as well as consumers, creators and the broader entertainment industry,” Netflix co-CEOs Ted Sarandos and Greg Peters said.
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Warner Bros. shareholders have until Jan. 21 to tender their shares, meaning they can sell their shares to Paramount for a set price of $30 per share in cash.
As of Wednesday morning, Paramount has not responded to the latest statement from Warner Bros.