The sign you first see when you come to Warner Bros Studios to take a tour in Hollywood.
Warner Bros Discovery (WBD) board has advised shareholders to reject the $108.4 billion (approximately R1.8 trillion) hostile bid from Paramount Skydance (PSKY), as it believes Netflix’s $82.7 billion (R1.4 trillion) bid remains superior.
The giant global media company told shareholders on Wednesday that Paramount’s bid failed to provide adequate financing assurances, deeming it “inferior”.
The details of Paramount and Netflix’s proposed bid differ. Paramount wants the entire Warner Bros Discovery’s pie, the streaming and studios division and the global networks division, which would require it to have equity financing. However, Netflix is only interested in the film and television studios, Warner Bros’ library, and the HBO Max streaming service, which do not require equity financing.
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Warner Bros rejects Paramount’s bid
In a letter to shareholders, disclosed in a regulatory filing, Samuel A. Di Piazza, Jr., chairperson of the Warner Bros Discovery board of directors, notes that the offer is inadequate and carries significant risks, urging shareholders to reject it.
“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,” he said.
“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.”
Paramount misleads Warner Bros
The letter highlights that Paramount has misled them by claiming it has air-tight financing, which is false.
“PSKY has consistently misled WBD shareholders that its proposed transaction has a full backstop from the Ellison family,” reads the letter. “It does not, and never has.
“PSKY’s most recent proposal includes a $40.65 billion (approximately R681 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.”
Financial backing is of importance
The letter further reads that “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 board emphasises 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.”
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Netflix is a safer choice
Warner Bros highlighted that a merger agreement with Netflix is safer, as it is a binding agreement with enforceable commitments, with no need for any equity financing and robust debt commitments.
“The Netflix merger is fully backed by a public company with a market cap in excess of $400 billion (approximately R6.7 trillion) with an investment-grade balance sheet,” reads the letter.
“The debt financing for the PSKY bid relies on an unsecure revocable trust commitment as well as the credit worthiness of a $15 billion market cap company with a credit rating at or only a notch above ‘junk’ status from the two leading rating agencies.”
Paramount cannot be trusted
The letter states that the Paramount offer is illusory.
“The offer can be terminated or amended by PSKY at any time prior to its completion; it is not the same thing as a binding merger agreement,” reads the letter.
“The first paragraph of the offer states it is ‘subject to the conditions set forth in this offer to purchase (as it may be amended or supplemented from time to time)’ and continues on the next page, ‘we reserve the right to amend the Offer in any respect (including amending the Offer Price)’.
“In addition, the offer is not capable of being completed by its current expiration date, due to the need for, among other things, global regulatory approvals, which PSKY indicates may take 12 to 18 months. Nothing in this structure offers WBD shareholders any deal certainty.
“The PSKY offer provides an untenable degree of risk and potential downside for WBD shareholders.”
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