Warner Bros. Discovery board rejects Paramount’s revamped hostile takeover bid

By Brian Stelter, David Goldman, CNN

(CNN) — Once again, Warner Bros. Discovery has chosen Netflix as its preferred suitor over Paramount.

On Wednesday, the WBD board advised shareholders that last month’s revised offer from Paramount is still not as appealing as the existing agreement with Netflix — even though Paramount said it had addressed many of Warner Bros.’ biggest concerns.

The WBD board called Paramount’s hostile takeover offer “inadequate” and overly risky.

In a letter to shareholders, the board likened Paramount’s proposal to a leveraged buyout, a financial process that relies on using mostly borrowed funds to buy a company.

Paramount is much smaller than WBD, so “to effect the transaction, it intends to incur an extraordinary amount of incremental debt — more than $50 billion — through arrangements with multiple financing partners,” the WBD letter stated.

This structure “poses materially more risk for WBD and its shareholders,” including the possibility of the whole takeover plan falling apart, compared with the “certainty of the Netflix merger,” the letter added.

Paramount has sought to alleviate concerns about the financing by pointing to the fact that one of the world’s richest people, Oracle billionaire Larry Ellison, is bankrolling much of the proposed takeover. His son David Ellison, the CEO of Paramount, triggered a bidding war for WBD last year by making an unsolicited bid for the assets, including CNN.

WBD, led by CEO David Zaslav, then ran an auction process and accepted Netflix’s offer of $27.75 per share for Warner Bros. and HBO, with $23.25 in cash and the rest in Netflix stock.

Paramount offered $30 per share and went public with that offer after it was spurned by the WBD board. But the board continues to insist that Paramount’s proposal is inferior.

Along with concerns about debt financing and onerous conditions connected to the offer, WBD has cited the potential value of its cable assets, which Netflix is not acquiring.

WBD’s cable channels, including CNN, are being broken off into a new, publicly traded company called Discovery Global later this year. The Warner board has argued that Discovery Global will have significant value on its own, while Paramount has valued it at just $1 per share.

When Paramount first launched its hostile takeover bid, WBD called the offer “illusory” and raised questions about the financing, which comes in large part from the royal families of Saudi Arabia, Qatar and Abu Dhabi.

In response, Paramount said on December 22 that Larry Ellison would personally guarantee the $40.4 billion he is putting up to bankroll the $78 billion transaction. The Ellisons also committed to let WBD shareholders peer into the finances of their family trust, and Paramount raised the breakup fee it would pay WBD to $5.8 billion, matching Netflix’s promised payment.

However, Paramount didn’t increase its bid above $30 in that amended offer.

Now, Paramount has a decision to make: It can walk away, it can raise the bid, or it can demand a vote from WBD’s shareholders.

The hostile nature of Paramount’s offer means that owners of WBD’s stock could reject the board’s recommendation if the company decides to put matters directly in shareholders’ hands.

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