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Warner Bros Discovery has rejected Paramount’s $108bn hostile bid as “inadequate” despite a personal pledge from Oracle co-founder billionaire Larry Ellison to backstop financing for the takeover.
The WBD board has insisted that the $83bn deal agreed last month with Netflix for its studio and streaming business is superior to Paramount’s offer for the entire company, including its legacy television assets such as CNN.
In a letter to shareholders released on Wednesday, WBD said the Paramount proposal would be “in effect . . . the largest leveraged buyout in history”. The result would be WBD taking on $54bn in debt from lenders including Bank of America, Citigroup and Apollo to finance the deal.
“This aggressive transaction structure poses materially more risk for WBD” than the Netflix proposal, the board said about Paramount’s financing plan. “The extraordinary amount of debt financing . . . heightens the risk of failure to close [the deal].”
The WBD board, which voted unanimously on Tuesday to reject the latest offer, has repeatedly shot down Paramount’s attempts to combine two of Hollywood’s most famous studios, both of which have roots in the silent film era. Instead, it has accepted the bid from Netflix, which has achieved a $400bn market value by disrupting the foundations of the traditional movie industry.
Paramount, which made its first approach to buy the legendary Hollywood studio in September, said on December 22 that Ellison had agreed to provide an “irrevocable personal guarantee” covering $40.4bn of equity financing for the WBD bid, which is being led by his son David Ellison.
The move was designed to address WBD’s concern that the Paramount bid was not personally guaranteed by Ellison.
The WBD board highlighted other issues in the shareholders letter, including potential costs of backing out of the Netflix deal. WBD said it would incur $4.7bn in costs if it reversed course and accepted the Paramount offer, including a $2.8bn termination fee to Netflix.
Unlike Netflix, Paramount is seeking to buy the company’s legacy television and cable assets such as CNN, TNT and Discovery Channel. Netflix plans to acquire WBD after it spins off its cable TV business, which is scheduled to happen later this year.
WBD touted the appeal of the spin-off of the cable unit, Discovery Global, to its shareholders in the letter. Comcast tested the waters with a similar cable spin-off this week. Shares of the spin-off, Versant, fell nearly 23 per cent in the first two days of trading.
Both cable groups have suffered subscriber losses due to cord-cutting and the rise of streaming. However, WBD rejected the idea that Versant is a “comparable” company to Discovery Global, which it said in a regulatory filing on Wednesday has “greater scale” and a “strong international presence”.
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