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Warner Bros Discovery’s board has urged its shareholders to reject Paramount’s $108bn hostile bid for the Hollywood studio, calling its attempt to gatecrash the deal “inferior” to the terms agreed with Netflix.
In a sharply worded letter to shareholders on Wednesday, the WBD board called the Paramount offer — its seventh bid since October — “illusory” because it is backstopped by an Ellison family trust rather than a personal guarantee by Larry Ellison, one of America’s richest people.
Paramount had “consistently misled WBD shareholders that its proposed transaction has a ‘full backstop’ from the Ellison family”, the board wrote in the letter. “It does not, and never has.”
Paramount has offered $30 a share in cash for WBD. David Ellison, Paramount chief executive and Larry’s son, has said the deal is supported by assets in the family trust, which is believed to hold Oracle shares worth about $250bn.
The Warner board said it was sceptical about the trust. “A revocable trust is no replacement for a secured commitment by a controlling stockholder,” WBD said in its letter. The offer from Paramount was not a binding merger agreement, it added.
“The offer provides an untenable degree of risk and potential downside for WBD shareholders,” the letter said.
The board said the Paramount offer was riskier than the $83bn Netflix deal, adding that the trust had undisclosed assets and liabilities, and that the offer contained loopholes and limitations.
The $9bn in synergies claimed by Paramount in its takeover would weaken, not strengthen, Hollywood, the letter said. Shareholders would also be on the hook for costs of up to $4.3bn if they rejected the Netflix deal, given a break fee and lost financing benefits from a proposed debt exchange.
The Ellison camp will have to decide whether to submit an improved bid. Its tender offer expires on January 8.
WBD accepted Netflix’s offer on December 5. Under the agreement, the streamer would acquire the Warner Bros film studio and library, the HBO Max streaming business, and valuable franchises including Harry Potter and Batman. In a separate transaction, WBD would spin off its cable television networks including CNN.
Paramount is seeking to buy the cable TV networks as well as the studio assets.
“The board continues to unanimously recommend the Netflix merger, and that you reject the [Paramount] offer and not tender your shares,” WBD said.
Paramount has argued that its bid is more likely to win regulatory approval, given the strong market share that a combination of Netflix and Warner Bros’ HBO Max would have in the US streaming market — an issue raised by President Donald Trump.
Paramount has been viewed as closer to the administration than Netflix due to the Ellisons’ relationship with the president. David Ellison told CNBC last week that Paramount had an “obviously faster path to regulatory certainty”.
However, Warner said in its letter that there was not a “material difference in regulatory risk” between the two offers. “The board believes that each transaction is capable of obtaining the necessary US and foreign regulatory approvals and that any difference between the respective regulatory risk levels is not material.”
WBD’s board also noted that Netflix had a very high break fee of $5.8bn, indicating confidence in winning approval.
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