Once again, Paramount has been at least temporarily stymied in its pursuit of Warner Bros. Discovery.
The Warner Bros. Discovery board of directors on Wednesday again recommended that its shareholders reject the latest hostile takeover bid by Paramount Skydance, arguing that Paramount’s amended bid — which saw the David Ellison-owned company agree to backstop its funding with a personal guarantee from Ellison’s father Larry — is neither superior nor ‘even comparable’ to that of winning bidder Netflix.
Netflix reached a signed merger agreement with WBD last month under which the streamer would acquire the company’s ‘streaming and studios’ division consisting of the Warner Bros. TV and film studios, HBO and HBO Max. The remaining WBD properties, the ‘global networks’ division consisting of linear cable networks — including the networks of TNT Sports, TNT, TBS and truTV — would be spun off into a new company called “Discovery Global,” as had been planned even before the sale process began.
Paramount is bidding for the entirety of Warner Bros. Discovery.
The board restated many of the same points it made in its previous recommendation last month, specifically that the Netflix bid provides greater value to shareholders, opting for Paramount would subject WBD to billions in fees and expenses, and Paramount simply does not have the financial resources to acquire a company the size of WBD without incurring intolerable levels of debt.
Chairman of the WBD board Samuel Di Piazza said on CNBC Wednesday that while Larry Ellison “stepped up to the table” with his personal guarantee, “ultimately, he didn’t raise the price.” Paramount is bidding $30/share for the full company, while Netflix is bidding between $27-28 for the streaming and studios division. The valuation of Discovery Global would thus make the difference in determining which of the bids offers more to shareholders. Paramount has argued that Discovery Global should be valued as little as $1/share, while WBD has not put a dollar figure on the company.
One of the main arguments Paramount has made in arguing for its deal is that the greater value of the Netflix bid is based on an inflated valuation of Discovery Global.
CNBC host David Faber pressed Di Piazza on the value of Discovery Global, noting the early performance of his own network’s parent company Versant — the spinoff of Comcast cable networks that has seen its stock price sink since going public on Monday. “Once again, the board has not given its shareholders any sense as to how you view the global network spinoff. My parent company is now public, Versant. It hasn’t gone well the last two days,” Faber said. “Global networks is not worth much of anything if you assume a Versant multiple. What gives you the confidence that it’s going to even equal anything that would equal the Paramount deal when added to that $27.40[/share] from Netflix?”
Di Piazza answered that WBD has “a lot more scale,” to which Faber countered that it also has “a lot more debt.” Di Piazza: “It does have a lot of debt, but a lot of that debt can be discounted and bought back. … It has more cash flow. It is a different company. Now, what’s it worth? The market is going to have to tell us that.”
When asked by Faber about the perception that WBD is coming up with reasons to scuttle Paramount’s bid, Di Piazza rejected the premise, saying that the company would be “very open to do a transaction with Paramount.”
In its announcement Wednesday, the board again rejected claims that it has not sufficiently engaged with Paramount, saying instead that it is Paramount that has repeatedly ignored “clear direction from WBD on both the deficiencies” of its bid “and potential solutions.” Despite “explicit instructions on how to improve each of its offers,” Paramount “has continued to submit offers that still include many of the deficiencies we previously repeatedly identified … none of which are present in the Netflix merger agreement.”
