Warner Bros. Discovery Rejects Paramount Skydance Acquisition Attempt

Warner Bros. Discovery (WBD) has turned down an acquisition offer from Paramount Skydance, which marks the seventh proposal from the company led by David Ellison and his father, Larry Ellison. WBD continues to promote its merger with Netflix, describing Paramount’s bid as a venture burdened with excessive debt, particularly a hefty $78 billion all-cash offer.

In a statement released on Wednesday, WBD asserted that the board is backing Netflix’s proposal instead, valuing Warner Bros. and the HBO Max service at $72 billion, or $27.75 per share. This seems to paint a clearer picture for investors.

A senior executive at WBD expressed frustration, noting that “they won’t listen to us,” and questioned the feasibility of Paramount’s plan. The executive highlighted concerns about whether financial backers would truly clear the necessary debts.

The board of WBD has argued that the combination of Netflix’s proposal and a projected $3 per share return from selling its cable division is evidently more advantageous than the Ellison family’s offer.

Moreover, the source underscored that any financial backing proposed by Larry Ellison would hinge on his ability to guarantee debts—a complicated situation, especially in a market where cable services are declining.

While leveraged buyouts (LBOs) typically involve private equity, Paramount Skydance’s pursuit is seen as a strategic merger due to its public status. Nevertheless, WBD insists on characterizing it as an LBO, with Chairman Samuel A. Di Piazza noting that it could lead to a record debt situation of approximately $87 billion.

The latest twist in this saga puts pressure on Paramount Skydance to sweeten its offer, potentially re-evaluating the share price or adopting what’s referred to internally as the “Defcon 1” strategy. This could involve allegations against WBD, claiming they have favored the Netflix deal from the beginning, likely due to the personal relationship between WBD’s CEO David Zaslav and Netflix’s Ted Sarandos.

WBD has denied these charges in ongoing exchanges with Paramount Skydance.

In a related matter, prominent investor Mario Gabelli, backing WBD shares, is reportedly aligning himself with the Ellisons in an attempt to persuade shareholders to reject Netflix’s proposal and support the acquisition bid. The deadline for their offers is set for January 21.

Simultaneously, Paramount is counting on the regulatory challenges that Netflix might face to hinder the deal, which dates back to a $19 per share cash and stock proposal made in September by David Ellison. This merger would combine the leading streaming services and is expected to attract scrutiny from antitrust regulators.

The Ellison family and Redbird Capital have voiced concerns that the Netflix offer comes with significant uncertainties, particularly relating to the potential earnings from spinning off cable networks such as CNN and TNT. Recent disappointing performances from cable networks like CNBC have added to their case, suggesting that shareholder returns could significantly undercut the $30 per share bid.

Recently, the Ellisons enhanced their offer, including a personal guarantee from Larry ensuring the deal’s success. Nonetheless, WBD has responded that these revisions still fail to address its concerns about the overall costs and potential fees required to finalize arrangements with Netflix.

Furthermore, WBD’s argument emphasizes the value shareholders will gain through ownership of Discovery Global, which boasts a strong portfolio of assets, including significant sports and news outlets.

Historically, LBOs—characterized by heavy debt financing—have drawn criticism due to the added pressure they place on companies to generate revenue while managing obligations to bondholders. Such scenarios have been linked to failures during previous acquisition frenzies, notably among media companies in the 1980s, which allowed industry leaders like Ted Turner to acquire various networks.

WBD remains the parent company to several key cable properties, including CNN, Discovery, and TNT, as well as the renowned Warner Studios and HBO Max streaming platform.