WBD Rejects Paramount's Deal - Again

WBD Rejects Paramount's Deal - Again

• by Wayne Friedman , Yesterday

Warner Bros. Discovery has again put the kibosh on Paramount Skydance's effort to buy the company.

"Paramount's latest offer remains inferior to our merger agreement with Netflix across multiple key areas," said Samuel DiPiazza, Jr., chair of the Warner Bros. Discovery Board of Directors, in a release.

Di Piazza says there is insufficient value to WBD shareholders -- as well as lack of protection for shareholders -- if the $30-per-share-in-cash offer is not completed.

WBD reiterated that Netflix's offer of $27.75 in cash and stock for WBD’s studios and streaming business is still a superior value without any significant risks, adding that the Paramount deal contains an “extraordinary amount of debt financing” that as a leveraged buyout, would in effect encumber the company with $87 billion in gross debt.

The company also is concerned that the long period needed to complete the deal -- estimated to be 12 to 18 months -- would affect ongoing programming and sports licensing deals.

By comparison, Netflix is in a strong financial position, with a market capitalization of $400 billion.

After WBD's initial rejection of Paramount’s offer, the company added a personal guarantee from billionaire Larry Ellison, the father of Paramount chief executive David Ellison, for $40.4 billion of equity financing.

The key, says Richard Greenfield, media analyst of Lightshed Partners, is what value WBD gives to its cable TV networks, previously intended to be spun off under the name Discovery Global.

Paramount's deal includes cable TV networks, while Netflix's does not.

“It is crystal clear that the WBD Board sees tremendous value in splitting the company up as soon as possible,” writes Greenfield. “Taking the Paramount offer would force WBD to abandon its plans to split the company.”

In addition to high expected value in a spinoff, Greenfield believes other higher value could be gained for Discovery Global by just a sale to another company.

“We firmly believe Discovery Global is for sale,” he says. ”Bidders have already approached WBD as part of its strategic review process.”

He believes that Paramount “not only needs to raise its bid substantially above $30/share (one or two dollars incremental is likely irrelevant), it also needs to change the composition of its bid to absorb the billions of costs associated with abandoning the Netflix bid and shift the financing from mostly debt to mostly cash.”