Warner Bros rejects Paramount Skydance's $108B hostile takeover bid
What's the story
The board of Warner Bros. Discovery has unanimously rejected a revised $108.4 billion hostile takeover bid from Paramount Skydance. The board termed the offer as a risky leveraged buyout, which investors should reject. The decision comes as Warner Bros remains committed to its deal with Netflix, another company vying for control of the studio and its extensive content library.
Financing concerns
Paramount's bid relies on heavy debt financing
The Warner Bros board highlighted that Paramount's offer is based on "an extraordinary amount of debt financing," which increases the risk of closure. They also noted that the acquisition would leave the smaller Hollywood studio with $87 billion in debt, making it the biggest leveraged buyout ever. The board reiterated its commitment to Netflix's $82.7 billion deal for the film and television studio and other assets.
Termination costs
Warner Bros board outlines costs of terminating Netflix deal
The Warner Bros board also detailed the costs it would incur if it terminates its deal with Netflix for Paramount's offer. This includes a $2.8 billion termination fee for backing out of the merger deal, $1.5 billion in fees to lenders, and around $350 million in additional financing costs. In total, Warner Bros said it would incur around $4.7 billion in extra costs to end its deal with Netflix, or $1.79 per share.
Business impact
Paramount's bid would impose operating restrictions
The Warner Bros board also raised concerns that Paramount's bid shall impose operating restrictions on the studio, hurting its business and competitive position. These comprise blocking the planned spin-out of the company's cable television networks into a different public company, Discovery Global. The board said Paramount was giving "insufficient compensation" for the damage done to the studio's business if this deal failed to close.
Proposal critique
Warner Bros criticizes Paramount's proposal
The Warner Bros board accused Paramount of "repeatedly failing to submit the best proposal" to its shareholders, despite clear directions on the deficiencies in its bid and possible remedies. They also noted some improvements in Paramount's updated offer, including Larry Ellison's personal guarantee and a higher reverse termination fee of $5.8 billion. However, they still found "significant costs" associated with this bid compared to a Netflix deal.