Warner Bros. Board Rejects Paramount Takeover Bid

The Warner Bros. Discovery board has officially rejected a hostile takeover bid from Paramount, describing the offer as 'inadequate.' The board cited the 'extraordinary amount of incremental debt' Paramount would need to incur as the primary reason for the dismissal.

Despite Paramount's offer of $30 per share—higher than the competing Netflix bid of $27.75—the board believes the financial risk is too high. The proposed acquisition would have required Paramount to take on over $50 billion in debt. Financing was expected to include significant backing from Larry Ellison, as well as wealth from royal families in Saudi Arabia and Qatar.

The board has reiterated its support for the Netflix deal, which they view as a safer option for shareholders. Paramount has since attempted to secure the deal by increasing the breakup fee and offering personal financial guarantees, but these moves have not changed the board's stance. With the rejection now public, Paramount must decide whether to bypass the board and appeal directly to shareholders, increase its offer price, or abandon the bid entirely.

The Warner Bros. Discovery board has released a fresh statement reiterating its rejection of the Paramount hostile takeover attempt. The board characterized the bid as a 'risk' to the company, specifically highlighting the financial burden associated with the acquisition. According to the statement, Paramount would be forced to incur more than $50 billion in debt to purchase the significantly larger Warner Bros.

This level of leverage poses 'materially more risk for WBD and its shareholders' compared to the alternative offer from Netflix. The board emphasized that the 'extraordinary amount of incremental debt' required by the Paramount bid makes it an unstable proposition for the company's future financial health.

The board previously advised shareholders to reject the Paramount bid last month. This latest statement was issued in response to subsequent updates from Paramount, which claimed to have addressed some financial concerns. However, the board remains unconvinced that the Paramount offer provides a better value proposition than the existing Netflix deal.

The Paramount bid relies on complex international financing to fund the acquisition of Warner Bros. Much of the proposed funding is expected to originate from Larry Ellison, the billionaire owner of Oracle. His son, David Ellison, currently serves as the chairman and CEO of Paramount.

In addition to the Ellison family wealth, other funds for the deal would come from the royal families of Saudi Arabia, Qatar, and Abu Dhabi. Despite the high-profile backing, the board views the debt structure as a liability.

While Paramount's offer of $30 per share exceeds the $27.75 per share proposed by Netflix, the deal structures differ significantly. Paramount's bid is for the full company, including the cable business. In contrast, Netflix has stated it would not acquire the cable business, which includes assets like CNN and TNT Sports.

Following the initial rejection, Paramount attempted to strengthen its position by offering concessions. The company increased the deal's breakup fee to match that of Netflix's offer. Additionally, Paramount claimed that David Ellison would personally guarantee his stake in the deal and allow shareholders to examine the finances of his family trust.

Despite these efforts, the Warner Bros. Discovery board has not changed its mind. With the rejection now public, Paramount faces a critical decision regarding its next steps. The company has three primary options:

1. Appeal to Shareholders: Paramount can bypass the board and take the offer directly to Warner Bros. shareholders to force a vote.
2. Increase the Bid: The company could raise its offer above the current $30 per share to make it more financially attractive.
3. Withdraw: Paramount could drop the bid entirely and admit defeat.

Paramount launched its hostile takeover bid shortly after Netflix emerged as the winner of a separate bidding war with an $82.7 billion deal for Warner Bros.

Even if Paramount exits the bidding process, the Netflix proposal faces significant challenges. The deal has already attracted negative attention from regulators and lawmakers. Some members of Congress have issued a tough response, and the acquisition is expected to face intense scrutiny under antitrust laws.

Legal challenges have already begun, with at least one HBO Max subscriber suing Netflix. The lawsuit claims the proposed merger threatens to reduce competition in the U.S. subscription video-on-demand market.

Another point of contention is the future of theatrical releases. Reports suggest Netflix is keen to shorten the release window for Warner Bros. movies to just 17 days should the buyout succeed. While Netflix has previously pledged to continue theatrical releases for now, they expect windows to shorten over time to become 'more user friendly.' One report suggests Netflix's interest in Warner Bros. is driven by a desire to acquire its vast content library to support future AI-generation tools.