The board said if Paramount’s proposed deal were to close, it would carry a debt load nearly 7 times larger than the combined company’s earnings before interest, taxes, depreciation and amortisation. “Such debt levels reflect a risky capital structure that is vulnerable to even potentially small changes” in Paramount or Warner Bros.′ business between signing and closing, according to the letter.
The latest offer from Paramount included $US54 billion in debt commitments from Bank of America Corp., Citigroup and Apollo as well as plans to raise $US41 billion in equity. It’s been previously reported that includes $US11.8 billion from the Ellison family, $US24 billion from three Middle East sovereign wealth funds and additional financing from RedBird Capital Partners. Affinity Partners, the investment firm founded by President Donald Trump’s son-in-law Jared Kushner withdrew from the process on Tuesday.
Larry Ellison has close ties with Donald Trump.Credit: Bloomberg
Paramount’s proposal will also require Warner Bros. to pay a $US2.8 billion breakup fee to Netflix.
The Paramount offer “remains inferior to the Netflix merger,” Warner Bros. wrote. The board unanimously recommended the Netflix deal, saying “the terms of the Netflix merger are superior,” while the Paramount offer “provides inadequate value and imposes numerous, significant risks and costs.”
Netflix issued a letter to Warner Bros. shareholders on Wednesday morning reiterating why it’s offer is better and urging them to approve the agreement.
“The Warner Bros. Discovery board reinforced that Netflix’s merger agreement is superior and that our acquisition is in the best interest of stockholders,” Ted Sarandos, Netflix co-chief executive officer, wrote.
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Warner Bros. shares were down 1 per cent to $US28.59 in New York on Wednesday morning. Shares of Netflix were up 1.8 per cent while Paramount shares were down 4.6 per cent.
Warner Bros.′ “formal rejection of Paramount’s offer changes nothing,” Forrester analyst Mike Proulx said. “The ultimate decision still rests with Warner Bros. shareholders and that vote is months away. What’s clear about Paramount’s bid are the growing eyebrow raises over its Middle Eastern financing. The same US officials and regulators who’ve sounded alarms about China’s influence on TikTok should be crying foul here.”
Ellison has made multiple unsolicited bids to acquire Warner Bros., first proposing the idea in a meeting with Warner Bros. CEO David Zaslav on September 14, according to a regulatory filing. The board rejected the bid, but Ellison’s pursuit over the following month, including two more offers, triggered interest from Netflix and Comcast., as well as other unidentified parties.
The outreach from potential bidders prompted the Warner Bros. board to initiate a strategic review and enter private negotiations with several suitors. Netflix, Comcast and Paramount emerged as the most serious bidders. Zaslav met with David Ellison or his father, the co-founder of Oracle Corp., on multiple occasions.
David Ellison has criticised the bidding process, accusing Warner Bros. of unfairly favouring Netflix. Yet Warner Bros. paints the Ellisons as aggressive and disorganised. The company submitted bids after deadlines, failed to address many concerns about its offers and simultaneously threatened and wooed management.
The Warner Bros board flagged risks in the Paramount offer, including the Ellison family’s failure to adequately backstop their $US40.7 billion equity commitment.Credit: Bloomberg
According to the filing, Zaslav told Warner Bros. board that the Ellisons indicated that if a transaction between Paramount and Warner Bros. was completed, that he would receive a compensation package “worth several hundred millions of dollars.” He told the board that he had “informed the Ellisons that it would be inappropriate to discuss any such arrangements at that time.”
Warner Bros. said it repeatedly raised concerns about insufficient evidence the Ellison family would backstop any deal. Netflix, by contrast, addressed each of the board’s concerns, the company said.
Some investors, including money manager Mario Gabelli, support a competitive auction of Warner Bros, believing that both Paramount and Netflix could raise their bids.
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A deal with either suitor will trigger a months-long regulatory review. While Paramount has insisted it has the best chance of getting its deal approved by regulators, Warner Bros. said it believes Netflix and Paramount are on equal footing there.
Both bids have sparked concern in Hollywood about the impact of further consolidation and criticism from across the political spectrum.
Paramount is targeting $US9 billion in cost savings planned from its earlier Skydance merger and the proposed acquisition of Warner Bros., the board said. “These targets are both ambitious from an operational perspective and would make Hollywood weaker, not stronger.”
Bloomberg
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