Paramount released a revised tender offer last month, with Larry Ellison agreeing to personally backstop the deal. WBD says the offer would be 'the largest LBO in history.'
By Alex Weprin
Warner Bros. Discovery is still sticking with Netflix.
Even after David Ellison’s Paramount filed a revised tender offer for the company Dec. 22, with Larry Ellison personally promising a full backstop on the deal, the WBD board released a letter Wednesday morning rejecting the new offer and sticking with its signed agreement with Netflix.
The revised offer also saw Paramount increase the termination fee to $5.8 billion, matching Netflix, and extending the deadline for the tender to later in January. The company kept its offer price at $30 per share, all cash.
But WBD’s board argued that the changes were not enough to persuade it to change its mind.
“Your Board unanimously determined that the PSKY amended offer remains inadequate particularly given the insufficient value it would provide, the lack of certainty in PSKY’s ability to complete the offer, and the risks and costs borne by WBD shareholders should PSKY fail to complete the offer,” the WBD board wrote.
In a filing that accompanies the letter, WBD framed the revised Paramount offer, even with the new Ellison backstop, as being “the largest LBO [leveraged buyout] in history” and that the structure poses risks to that offer.
“Changes in the performance or financial condition of either the target or acquiror, as well as changes in the industry or financing landscapes, could jeopardize these financing arrangements,” the board wrote. “Many prior large LBOs illustrate that acquirors or their equity and/or debt financing sources can, and do, seek to assert failures of closing conditions in order to terminate a transaction or renegotiate transaction terms. This aggressive transaction structure poses materially more risk for WBD and its shareholders when compared to the [conventional structure of the] Netflix merger.”
And while Paramount raised its termination fee, WBD said that because it would need to pay Netflix $2.8 billion, pay additional interest on debt, and pay a $1.5 billion fee for failing to complete a debt exchange, Paramount’s fee would only net out to $1.1 billion.
WBD also noted a report from Charles Gasparino in the New York Post, which claimed that Paramount was plotting a “DEFCON 1” lawsuit should WBD not accept its proposed deal.
“WBD continues to be of the view that PSKY is a litigious counterparty, which raises concerns regarding the likelihood that the Offer (or any related merger agreement) will be completed on the terms proposed,” the company wrote in a filing.
Ellison and Paramount continue to believe that their all-cash offer is superior, compared to the more complex Netflix deal which includes cash, Netflix stock and a “stub” in the form of Discovery Global, which WBD hopes to complete its spinoff of under the Netflix agreement.
The stock performance of Versant (down double digits), which officially spun out of Comcast earlier this week, lends more credibility to Paramount’s claims that Discovery should be valued closer to $1 per share, rather than the $3-$5 per share that others have placed on it, though WBD obviously disagrees.
“While PSKY continues to point to Comcast’s Versant as a comparable public company, Discovery Global’s business has greater scale and profits, with a geographically diversified footprint and strong international presence,” WBD wrote in the filing.
“Paramount has repeatedly demonstrated its commitment to acquiring WBD. Our $30 per share, fully financed all-cash offer was on December 4th, and continues to be, the superior option to maximize value for WBD shareholders,” David Ellison said in a statement announcing the revised bid last month. “Because of our commitment to investment and growth, our acquisition will be superior for all WBD stakeholders, as a catalyst for greater content production, greater theatrical output, and more consumer choice. We expect the board of directors of WBD to take the necessary steps to secure this value-enhancing transaction and preserve and strengthen an iconic Hollywood treasure for the future.”
