Paramount launches $118bn hostile takeover for Warner Bros Discovery
Entertainment titan Paramount has stunned the industry by launching an audacious $118bn bid to steal Warner Bros Discovery from Netflix’s grasp in a high-stakes corporate battle.
Paramount launched a $US77.9 billion ($118bn) hostile takeover offer for Warner Bros. Discovery on Monday, taking its case for acquiring the storied entertainment company directly to shareholders just days after Warner agreed to a deal with Netflix.
Paramount, run by David Ellison, is arguing that its all-cash $US30-a-share offer for all of Warner, owner of networks such as CNN, TBS and HGTV as well as the HBO Max streaming service, is a better deal for shareholders and more likely to pass regulatory muster. Paramount said its offer “provides shareholders $18bn more in cash than the Netflix consideration”. “We’re really here to finish what we started,” Mr Ellison said on CNBC Monday morning local time.
Netflix agreed to pay $109bn, or $US27.75 a share, for Warner’s studio and HBO Max streaming business after the entertainment company splits itself in two, in a cash-and-stock deal the companies announced on Friday.
Paramount’s decision to take its offer directly to Warner’s shareholders could set up a messy, public battle for the future of Warner’s coveted assets such as HBO, Harry Potter and DC Comics.
Paramount said its deal would be fully backstopped by the Ellison family and RedBird Capital, along with $81.5bn of debt commitments from Bank of America, Citi and Apollo.
Paramount also said it has equity commitments from the sovereign wealth funds of Saudi Arabia, Abu Dhabi and Qatar, as well as Affinity Partners, the private equity firm of Jared Kushner, President Donald Trump’s son-in-law. All of those groups agreed to forgo any voting rights, Paramount said, which could ease the deal’s path in Washington.
Warner confirmed receipt of Paramount’s offer and said it would advise shareholders on what to do within 10 business days, adding it still recommends supporting the Netflix deal for now.
Tender offers are time-consuming and expensive, and many have failed. It is especially audacious for Paramount, which has a market value of around $22.6bn, to effectively go up against Netflix, worth well over $600bn.
Netflix co-CEO Ted Sarandos said at a Monday conference appearance that Paramount’s tender offer “was entirely expected”, noting Netflix is happy with its deal and “super confident” it will get it done. Paramount’s offer values Warner at $163bn on an enterprise value basis, which includes assumed debt.
Paramount on Monday accused Warner of never meaningfully engaging with it even as it submitted six takeover proposals over the past 12 weeks. Shareholders have until January 8 to decide whether to tender their shares, unless the timeline is extended.
“We were told repeatedly that they wanted all cash. We delivered all cash,” Mr Ellison said on CNBC.
If Paramount prevails, the iconic Warner studio and the CNN news channel would become part of the growing media-tech empire of Mr Ellison and his father, Larry Ellison, the Oracle co-founder who is close to Mr Trump. Already, the family are set to play a major role in TikTok’s US operations after a preliminary deal the President helped broker.
Paramount warned Warner’s lawyers in a letter last week that it believes a deal with Netflix wouldn’t close because of regulatory roadblocks in the US and abroad. Netflix included a $8.8bn break-up fee in its agreement, one of the largest ever, a signal of its optimism that it would be able to close the deal. Mr Sarandos said the company is “highly confident” about approval.
Mr Trump, speaking to reporters before a Kennedy Centre event on Sunday, said Netflix’s deal for Warner “could be a problem” because it would result in a large market share for the streaming giant.
“They have a very big market share,” Mr Trump said. “And when they have Warner Brothers, that share goes up a lot. I’ll be involved in that decision.”
Mr Trump also took aim at Paramount on Monday in a social media post, criticising the company for having representative Marjorie Taylor Greene, a Republican who has sparred with him, on 60 Minutes recently. He suggested the CBS news magazine has gotten worse since Paramount took control of it.
If Warner walks away from its deal with Netflix to strike a deal with another suitor, it will owe Netflix $4.2bn, according to their agreement.
If Netflix survives the challenge from Paramount and completes its deal with Warner, it would cement its dominant role in Hollywood. It would be in position to accelerate changes as the industry considers the future of movie theatres and the role artificial intelligence will play in the content business.
Netflix’s winning bid for Warner took the market by surprise in part because the company had long built its business, rather than pursuing acquisitions, and because weeks earlier one of its co-CEOs suggested it wanted to avoid a big merger. Its largest deal before Friday had been worth around $680m. But Netflix had been quietly studying the Warner Bros
entertainment assets and its bid came together quickly, The Wall Street Journal reported.
Though Warner agreed to a deal with Netflix at a lower price than the $US30 per share Paramount had previously offered, Warner concluded Netflix’s deal was really worth $US31 to $US32 a share, people familiar with the matter previously told the Journal. That is because its shareholders would continue to own shares in both companies after Warner Discovery’s split.
Paramount in its letter suggested such reasoning is “unsupported by the business fundamentals”. Warner shares closed Friday at $US26.08, below the price Netflix agreed to pay and implying some scepticism in the market that the transaction will ultimately close.
Paramount shares closed Friday down almost 10 per cent. It was an unusual sell-off for a losing party in a bidding war, as investors typically cheer a company avoiding such a big expense, in this case tens of billions of dollars.
Paramount shares were up around 7 per cent midday Monday while Warner’s shares were up around 4 per cent. Netflix shares were down around 3 per cent.
Paramount will now need to convince Warner shareholders its offer is better. Harris Associates and Sessa Capital are among Warner’s biggest shareholders.
Topping bids emerging after a company has agreed to a deal with another buyer are relatively rare in the world of mergers and acquisitions, though can happen when a particularly coveted asset in an industry is up for sale.
A bidding war ensued earlier this year for weight-loss drug start-up Metsera after it struck a deal to sell to Pfizer. Novo-Nordisk emerged with an unsolicited offer that was deemed to be superior. After a series of raised bids from both parties, Pfizer prevailed.
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