Warner Bros. Rejects Latest Paramount Bid, Favoring Netflix

Warner Bros. Discovery Inc. rejected an amended takeover offer from Paramount Skydance Corp. and encouraged shareholders to stick with a deal it has in place with Netflix Inc., voicing skepticism about the interloper’s ability to pull off what it said would effectively be the largest leveraged buyout in history.

The snub came after billionaire Larry Ellison said he would personally guarantee $40.4 billion in equity financing for Paramount’s hostile offer to buy shares at $30 apiece. Warner’s board said Wednesday in a letter to shareholders that it has doubts that Paramount will be able to close the deal and that its proposal carries significant risks and uncertainties compared with Netflix’s offer of $27.75 per share in cash and stock for Warner Bros.’ studios and streaming business.

Paramount’s financing for the deal remains a key sticking point. The Warner Bros. board reiterated concerns about the more than $50 billion of borrowing required. Paramount, with a market value of about $14 billion, is attempting an acquisition requiring $94.65 billion of debt and equity financing, Warner Bros. said in the letter, nearly seven times its total market capitalization.

“The extraordinary amount of debt financing as well as other terms of the PSKY offer heighten the risk of failure to close, particularly when compared to the certainty of the Netflix merger,” the company said. “Changes in the performance or financial condition of either the target or acquiror, as well as changes in the industry or financing landscapes, could jeopardize these financing arrangements.” Bloomberg's Geetha Ranganathan joins to discuss with Paul Sweeney and Scarlet Fu.

Warner Bros.’ rejection is the latest move in an increasingly acrimonious battle for one of Hollywood’s most storied studios. Paramount, which is controlled by Ellison, the Oracle Corp. chairman, and his son David, has been trying for months to win over Warner Bros., competing with the most valuable entertainment company in the world to acquire the home of films like Batman and Harry Potter, as well as HBO, one of the crown jewels of the TV business. Its attempts have been repeatedly rebuffed.

Instead, Warner Bros. announced a deal to sell its studios and streaming business to Netflix on Dec. 5. Warner Bros. plans to spin off its cable-TV networks to shareholders before the sale to Netflix closes. Paramount’s offer is for the whole of Warner Bros., including the cable assets. For both Netflix and Paramount, landing Warner Bros. would reshape the entertainment industry, giving the new owner a coveted content library and the opportunity to expand streaming offerings.

Warner Bros. shares were up less than 1% at $28.68 midday in New York. Paramount shares were down less than 1% to $12.41. Netflix was little changed at $90.98.

After Paramount lost out to Netflix, it took its proposal directly to shareholders on Dec. 8, offering to buy their shares for $30 each in cash. Shareholders have until Jan. 21 to decide whether to accept Paramount’s tender offer.

Several shareholders and analysts have said they expect Paramount to increase its bid.

“Warner Bros. Discovery’s rejection of Paramount’s amended $30-a-share bid suggests the M&A saga is far from over,” Bloomberg Intelligence analyst Geetha Ranganathan wrote in a note. “We believe Paramount would need to raise its offer to at least $32 per share to bring Warner back to the table.”

Samuel DiPiazza, the chairman of Warner Bros.’ board, said on CNBC on Wednesday, that he and his colleagues recognize Ellison’s effort in personally backing Paramount’s deal and that it was a “major change” in their position. But he said there were also “other matters” Warner Bros. would have to deal with and “ultimately, he didn’t raise the price.” He said Paramount had the opportunity “in the seventh proposal, the eighth proposal, and they haven’t done it.” Ultimately, DiPiazza said, “they’ve got to put something on the table that is compelling and is superior.”

Pentwater Capital Management, the seventh-largest Warner Bros. shareholder, said the board has “made an error” in not engaging with Paramount on its revised bid. In a letter to DiPiazza and the board on Wednesday, Pentwater said Paramount’s $30-a-share offer in cash is “economically superior” to Netflix’s offer.

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