Paramount sues WBD over Netflix deal. WBD says Paramount’s price is still inadequate.
Hostile takover gets more hostile
WBD calls Paramount’s lawsuit “meritless” and its offer deficient.
Paramount Skydance escalated its hostile takeover bid of Warner Bros. Discovery (WBD) today by filing a lawsuit in Delaware Chancery Court against WBD, declaring its intention to fight Netflix’s acquisition.
In December, WBD agreed to sell its streaming and movie businesses to Netflix for $82.7 billion. The deal would see WBD’s Global Networks division, comprised of WBD’s legacy cable networks, spun out into a separate company called Discovery Global. But in December, Paramount submitted a hostile takeover bid and amended its bid for WBD. Subsequently, the company has aggressively tried to convince WBD’s shareholders that its $108.4 billion offer for all of WBD is superior to the Netflix deal.
Today, Paramount CEO David Ellison wrote a letter to WBD shareholders informing them of Paramount’s lawsuit. The lawsuit requests the court to force WBD to disclose “how it valued the Global Networks stub equity, how it valued the overall Netflix transaction, how the purchase price reduction for debt works in the Netflix transaction, or even what the basis is for its ‘risk adjustment’” of Paramount’s $30 per share all-cash offer. Netflix’s offer equates to $27.72 per share, including $23.25 in cash and shares of Netflix common stock. Paramount hopes the information will encourage more WBD shareholders to tender their shares under Paramount’s offer by the January 21 deadline.
Before WBD announced the Netflix deal, Paramount publicly questioned the fairness of WBD’s bidding process. Paramount has since argued that its bid wasn’t given fair consideration or negotiation.
In his letter today, Ellison wrote:
We remain perplexed that WBD never responded to our December 4th offer, never attempted to clarify or negotiate any of the terms in that proposal, nor traded markups of contracts with us. Even as we read WBD’s own narrative of its process, we are struck that there were few actual board meetings in the period leading up to the decision to accept an inferior transaction with Netflix. And we are surprised by the lack of transparency on WBD’s part regarding basic financial matters. It just doesn’t add up – much like the math on how WBD continues to favor taking less than our $30 per share all-cash offer for its shareholders.
Additionally, Paramount plans to nominate board directors for election at WBD’s annual shareholder meeting who will fight against the Netflix deal’s approval. The window for nominations opens in three weeks, Ellison’s letter noted.
Paramount will also propose that WBD change its bylaws so that WBD’s shareholders have to approve a spinoff of WBD’s cable channels.
WBD still unimpressed by Paramount’s price
In response, WBD shared the following statement with Deadline:
Despite six weeks and just as many press releases from Paramount Skydance, it has yet to raise the price or address the numerous and obvious deficiencies of its offer. Instead, Paramount Skydance is seeking to distract with a meritless lawsuit and attacks on a board that has delivered an unprecedented amount of shareholder value. In spite of its multiple opportunities, Paramount Skydance continues to propose a transaction that our board unanimously concluded is not superior to the merger agreement with Netflix.
When WBD’s board last rejected Paramount’s offer on January 7, it cited Paramount requiring an “extraordinary amount of debt financing,” as well as Paramount having a “junk credit rating” and negative free cash flows compared to Netflix’s “A/A3 crediting rating” and estimated free cash flow of over $12 billion this year. WBD said Paramount’s bid would result in $87 billion in debt and doesn’t cover expensive breakup fees should the Paramount deal fail to close.
Paramount has responded to concerns about its finances partially by tapping Ellison’s father, Oracle co-founder and CTO and the world’s fourth richest man, Larry Ellison, to provide an irrevocable personal guarantee of $40.4 billion of the equity financing for Paramount’s bid. Ellison reaffirmed his familial assets in today’s letter.
“Paramount is committed, my family is committed, and hopefully this helps answer the question of what comes next,” he wrote.
Still, price remains a top concern for WBD, which has also suggested that it could get more for its cable channels if they were sold separately from its movie studios and HBO Max. A Paramount deal would force WBD to stop working on the spinoff, which could be problematic if the merger fell apart.
WBD board chairman Samuel Di Piazza Jr. also noted that Paramount has failed to raise the price of its offer across multiple bids. “And so from our perspective, they’ve got to put something on the table that is compelling and is superior,” he said during a January 7 appearance on CNBC’s Squawk Box.
Statements from WBD shareholders suggest that Paramount still has a chance to woo WBD, whose investors have expressed varied opinions on Paramount’s offer, with some large shareholders recently stating they prefer Paramount’s offer or are open to further negotiation with Ellison’s firm.
With Paramount having been reported to be eyeing a WBD acquisition for at least two years, it’s willing to fight a legal battle, but it’s unclear if it is willing to pay more.
Either Netflix’s or Paramount’s acquisition would require regulatory approval and could take 12 to 18 months to close. Amid the battle for WBD, Netflix has started working with regulatory bodies to further its acquisition.
Scharon is a Senior Technology Reporter at Ars Technica writing news, reviews, and analysis on consumer gadgets and services. She’s been reporting on technology for over 10 years, with bylines at Tom’s Hardware, Channelnomics, and CRN UK.
