Paramount Skydance revealed its strategy on Monday to convince Warner Bros. Discovery shareholders that it is a more favorable acquirer for the company than Netflix. This aggressive bid initiates a contest that may become complex.
Paramount has officially initiated a tender offer for existing WBD shares at $30 per share, all in cash. This bid is supported by $41 billion in equity financing. The rest will come from RedBird Capital and Jared Kushner’s Affinity Partners. Paramount also holds $54 billion in debt commitments from Bank of America, Citi, and Apollo Global Management.
The tender offer from Paramount will last for 20 business days, as stated by Paramount’s Chief Strategy Officer, Andy Gordon, during a conference call with investors on Monday. Warner Bros. Discovery has a period of 10 days to respond, and after the 20 business days, Paramount may extend the offer period for WBD shareholders, Gordon added.
During this timeframe, any WBD shareholders can sell their shares to Paramount for $30. If Paramount acquires 51% of the outstanding shares, it would assume control of the company.
“We genuinely believe that the [Paramount] offer will achieve significant traction,” wrote Ric Prentiss, an equity analyst at Raymond James, in a note to clients. “However, we think Netflix remains committed to this deal; if [Paramount] seems to be gaining momentum, we wouldn’t be shocked to see a reaction.”
This reaction might take the form of an increased offer from Netflix, although Netflix co-CEO Ted Sarandos did not imply this when speaking on Monday at the UBS Global Media and Communications Conference.
An extended battle could potentially lead to lawsuits or proxy disputes necessitating full shareholder votes.
The board of WBD stated on Monday that it “is not changing its recommendation regarding the agreement with Netflix.” It urged shareholders “not to act at this moment concerning Paramount Skydance’s proposition.”
Nevertheless, the board will “thoroughly review and consider Paramount Skydance’s offer in line with the stipulations of Warner Bros. Discovery’s arrangement with Netflix, Inc.,” the board noted in its statement.
Building a case
If WBD shareholders appear to believe in Paramount’s superior bid, Warner Bros. Discovery management might restart amicable negotiations with Paramount to ensure they secure the best agreement possible.
Paramount CEO David Ellison communicated to CNBC’s David Faber on Monday that the company’s $30-per-share proposal is not its “final and best,” implying Paramount is willing to increase its offer for WBD if discussions resume.
Ellison aspires to persuade WBD shareholders that a $30-per-share, all-cash offer is worth more than Netflix’s $27.75-per-share, cash-and-stock bid for WBD’s streaming and studio assets.
He expressed to CNBC on Monday that he appraises the linear cable networks, which are excluded from Netflix’s proposal, at only $1 per share. WBD has internally valued that segment at around $3 per share, according to previous CNBC reports.
If WBD negotiates an agreement with Paramount, it would owe Netflix $2.8 billion as a breakup fee — meaning Paramount might need to raise its bid or agree to cover the fee to account for the extra expense.
Regulatory concerns
Ellison indicated on Monday that Paramount’s likelihood of regulatory approval, coupled with what he perceives as a superior bid, should influence shareholders to conclude that the WBD board erred in opting for Netflix’s offer.
A merger between Netflix and HBO Max would create a streaming service “at such a scale that it would be detrimental to Hollywood and harmful to consumers,” said Ellison, emphasizing that it would be “anticompetitive in every fundamental aspect.”
Sarandos disagreed.
“We’re extremely confident we’ll finalize this,” Sarandos asserted on Monday at the UBS conference.
Sarandos also criticized Paramount’s $6 billion synergy estimate, remarking that those prospective cost reductions would likely lead to job losses.
“We’re not eliminating jobs; we’re creating jobs,” Sarandos stated.
