Paramount Chief Executive David Ellison and his father Larry, the billionaire co-founder of Oracle, are majority shareholders in Paramount, along with RedBird Capital.
Netflix NFLX 0.85%increase; green up pointing triangle earlier this month agreed to pay $72 billion, or $27.75 a share, in cash and stock for Warner’s studio and HBO Max streaming business after the entertainment company splits itself in two.
Paramount then went hostile with its $77.9 billion proposal to acquire all of Warner. Paramount has been arguing that its offer is a better deal for shareholders and more likely to pass regulatory muster.
The Wall Street Journal reported Tuesday that a rejection from Warner was imminent.
In its sharply critical letter, Warner said that the Ellison family is using a revocable trust to fund the deal and that documents provided by Paramount about the commitment “contain gaps, loopholes and limitations that put you, our shareholders, and our company at risk.”
The Netflix merger, on the other hand, is fully backed by a public company with a market cap of more than $400 billion and with an investment-grade balance sheet, Warner said.
“The terms of the Netflix merger are superior,” Warner said in its letter. “The [Paramount] offer provides inadequate value and imposes numerous, significant risks and costs on [Warner].”
Paramount didn’t immediately comment Wednesday morning.
Paramount’s hostile bid is at $30 a share, though the company has also told Warner this offer isn’t its “best and final” proposal, a signal it could increase the bid. Its tender offer is set to expire on Jan. 8 but can be extended. The company will now have to decide whether it will submit a sweetened offer.
Warner shares closed Tuesday at $28.90, falling after the Journal reported on the coming rejection and shares were slipping further premarket.
Paramount’s bid initially included capital from three Gulf sovereign-wealth funds, as well as Jared Kushner’s Affinity Partners. As of Tuesday, Affinity was no longer involved in the deal.
“The dynamics of the investment have changed significantly since we initially became involved in October,” an Affinity spokesman said, adding the firm continues to see “strong strategic rationale for Paramount’s offer.”
Kushner wasn’t the linchpin for the Middle East funds involved in the deal, so his exit isn’t expected to upset the wider group, people familiar with the matter said.
Paramount has said repeatedly that it didn’t hear back from Warner so that it could improve its offer.
Warner countered this, saying that its board repeatedly engaged with all parties, holding dozens of calls and meetings with the principals and the Ellisons. The company said it raised the concerns about the funding to Paramount and the Ellisons and gave them several opportunities to change the offer.
Warner also said Wednesday that its board didn’t believe there was a “material difference in regulatory risk” between the Paramount offer and the Netflix deal. Both bids have ignited concerns in Hollywood about job cuts and other consequences from further industry consolidation.
Warner said the Paramount deal “would make Hollywood weaker, not strong.”
Netflix co-CEO Ted Sarandos said following Warner’s decision that Netflix and Warner “complement each other, and we’re excited to combine our strengths with their theatrical film division, world-class television studio, and the iconic HBO brand, which will continue to focus on prestige television.”
A shareholder vote on the deal isn’t expected to happen until the spring or even summer.
Write to Lauren Thomas at lauren.thomas@wsj.com and Joe Flint at Joe.Flint@wsj.com
