NEW YORK—Warner Bros. Discovery’s Board of Directors has unanimously voted to recommend that shareholders reject the tender offer launched by Paramount Skydance.
In making the decision, the Board called the Paramount offer “inferior” to the Netflix deal and raised a number of questions about the financing and risks associated with accepting Paramount’s proposal, arguing that it does not provide a full financial backstop from the Ellison family.
"Following a careful evaluation of Paramount's recently launched tender offer, the Board concluded that the offer's value is inadequate, with significant risks and costs imposed on our shareholders," said Samuel A. Di Piazza, Jr., chair of the Warner Bros. Discovery Board of Directors. "This offer once again fails to address key concerns that we have consistently communicated to Paramount throughout our extensive engagement and review of their six previous proposals. We are confident that our merger with Netflix represents superior, more certain value for our shareholders and we look forward to delivering on the compelling benefits of our combination."
In a letter to shareholders outlining the decision, the Board said that after conducting a detailed review of the Paramount (PSKY) offer, it “continues to unanimously recommend the Netflix merger, and that you reject the PSKY offer and not tender your shares.”
In making that decision the Board said that “The terms of the Netflix merger are superior. The PSKY offer provides inadequate value and imposes numerous, significant risks and costs on WBD.”
The letter also raised questions about the financing for the Paramount Skydance offer, noting that “PSKY has consistently misled WBD shareholders that its proposed transaction has a `full backstop' from the Ellison family. It does not, and never has…PSKY's most recent proposal includes a $40.65 billion equity commitment, for which there is no Ellison family commitment of any kind. Instead, they propose that you rely on an unknown and opaque revocable trust for the certainty of this crucial deal funding. Despite having been told repeatedly by WBD how important a full and unconditional financing commitment from the Ellison family was – and despite their own ample resources, as well as multiple assurances by PSKY during our strategic review process that such a commitment was forthcoming – the Ellison family has chosen not to backstop the PSKY offer.”
The letter also argued that a “revocable trust is no replacement for a secured commitment by a controlling stockholder. The assets and liabilities of the trust are not publicly disclosed and are subject to change. As the name indicates, revocable trusts typically have provisions allowing for assets to be moved at any time. And the documents provided by PSKY for this conditional commitment contain gaps, loopholes and limitations that put you, our shareholders, and our company at risk. Amplifying the concerns about the credibility of the equity commitment being offered by PSKY, the revocable trust and PSKY have agreed that the trust's liability for damages, even in the case of a willful breach, would be capped at 7% of its commitment ($2.8 billion on a $108.4 billion transaction). Of course, the damage to WBD and its stockholders were the trust or PSKY to breach their obligations to close a transaction would likely be many multiples of this amount.”
The letter also touted the advantages of the deal with Netflix to acquire Warner Bros. studio, HBO and HBO Max assets. “Our agreement with Netflix gives WBD shareholders $23.25 in cash, plus $4.50 in shares of Netflix common stock (based on a collar range of $97.91 - $119.67 in the Netflix stock price at the time of closing), plus the additional value of the shares of Discovery Global and the opportunity to participate in future potential upside following Discovery Global's separation from WBD. The entire Board is confident in our recommendation that Netflix represents the best value-creating path for shareholders.”
The full letter can be found here.
