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Warner Bros Discovery’s board on Wednesday told investors to reject Paramount’s $108bn hostile bid for the Hollywood media group, saying it was inferior to an $83bn deal agreed with Netflix.
The letter from WBD’s board is the latest twist in a takeover saga that stands to reshape Hollywood, regardless of which suitor eventually succeeds.
The battle has become increasingly acrimonious, as Paramount tries to drum up shareholder support ahead of a January 8 deadline for its tender offer.
At stake is the future of a 102-year-old Hollywood brand with a rare collection of assets including the studio behind the Harry Potter franchise and the HBO Max streaming service.
Here are the key points revealed in Wednesday’s filing:
Paramount offered Zaslav several hundred million dollars
Early on in the talks between Paramount and WBD, chief executive David Zaslav told his board that Larry and David Ellison offered him “a compensation package worth several hundred million dollars” and a role as co-CEO and co-chairman of the combined company if the deal with Paramount went through. Zaslav told the Ellisons that it would be “inappropriate” to discuss any such arrangements at that time.
WBD bankers to make $225mn in fees
Media-specialised investment boutique Allen & Co, bulge bracket JPMorgan and independent adviser Evercore are going to make $225mn in fees for their work for WBD on its sale. Allen & Co and JPMorgan will make $85mn each, with the majority being paid upon the closure of the deal, while Evercore will make $55mn. The fees for Allen & Co and JPMorgan would rank among the biggest investment banking fees of the year. The biggest so far is the $130mn fee due to Bank of America for its work on the tie-up of railroad companies Union Pacific and Norfolk Southern.
WBD says cable channel spin-off attracted buyer interest but does not include valuation
WBD’s filing says its cable business, which includes CNN and Discovery, attracted buyer interest, but it did not put a valuation on the division, a key question in the battle between Paramount and Netflix. An investment firm, identified as “Company B”, expressed interest in a deal for the networks business, which was “not immediately actionable”. A separate US-based media group made a bid to buy the television businesses, alongside a 20 per cent stake in the studio and streaming assets, for $25bn in cash.
Comcast’s offer would have been the highest, but mostly in stock
Comcast — referred to as “Company A” in the filing — had proposed combining the streaming and studios business with its own NBCUniversal business, with WBD shareholders ending up with just less than half of the merged company. A “headline price” of $35.43 a WBD share was put forward, significantly higher than the bids of both Netflix and Paramount, but mostly in stock. Comcast also offered a termination fee of $5bn. A suggested company board of 11 members, with six from Comcast and five from WBD, did not include any offer of future employment to members of WBD management.
Paramount was told to stop talking to WBD directors
In November, attorneys representing WBD told those for Paramount that the company had become aware that Paramount representatives “were seeking to engage in direct conversations” with members of its board. They were told that this was in violation of the non-disclosure agreement, and told to cease such activities immediately. “Such contacts nonetheless continued to occur during the ensuing period,” according to the letter.
Legal letter ‘tactic’ backfired with the WBD board
The filing says Paramount threatened WBD “with unfounded allegations as a pressure tactic” after a letter from law firm Quinn Emanuel was sent that accused WBD directors of “bias and beholdenness to others”. WBD said that even advisers of Paramount reached out separately to its lawyers suggesting that the letter was “not helpful” and a “mistake”.
Paramount slow to disclose sovereign wealth fund backing
On November 18, a Paramount banker initially denied to his WBD counterpart that its bid would include co-investors, saying instead it would make a “clean bid for the whole thing”. A week later, lawyers for Paramount said there would be “single digits” in terms of number of investors. But on December 1, a banker for Paramount acknowledged multiple Middle Eastern sovereign funds would indeed be included in its financing consortium.
The Ellison family guarantee became a big concern
WBD emphasised throughout the process the need for a full equity backstop personally guaranteed by the Ellison family, noting, “[Paramount] had on numerous occasions conveyed both orally and in writing that the Ellison family would fully backstop the equity commitment”. However, the final bid instead promised the backstop from the family’s revocable trust. The filing says: “A personal guarantee is not unprecedented, and is particularly appropriate given the extraordinary amount of equity funding that [Paramount] requires.”
WBD set December 1 as the final bids date
On November 25 WBD told Netflix, Paramount and Comcast they had to make final bids and that “they should not expect an additional opportunity to improve their bid after that date”. This is significant, as Paramount’s chief executive and one of its advisers at Centerview Partners sent separate messages to WBD representatives on December 4 to inform them that their last bid was not their “best and final”, indicating that they would further sweeten their offer.
Netflix threatened to walk away unless the board came to a decision
On December 4, Netflix’s lawyers told the WBD that its offer was its “best and final proposal” and that “if we are not done before open of market tomorrow morning, our proposal shall be deemed withdrawn, null and void . . . we will withdraw from your process, abandon pursuit of the transaction and terminate discussions”. Sarandos then called Zaslav directly to inform him that Netflix was prepared to enter into definitive transaction agreements with WBD that evening, or it would withdraw its proposal and from the process.
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