Netflix may have just received a clearer path to taking over Warner Bros. Discovery. Following the announcement that the streaming giant had reached a deal to purchase WBD for $82.7 billion, David Ellison's Paramount Skydance submitted a hostile bid for the company, offering $30 per share, for a reported approximate value of $108.4 billion. The company attempted to position itself as the healthiest choice for shareholders, citing a commitment to the theatrical distribution industry, and an easier regulatory process.
Following the announcement, Netflix co-CEO Ted Sarandos stated the hostile bid was expected, but expressed confident in the streamer's deal with WBD moving forward. Warner Bros. had ten business days to respond to the offer, and now, it's been made official: The company's board of directors has rejected Paramount's bid, citing "numerous significant risks and costs on WBD," and has urged its investors to reject it as well.
In an apparent sign that things have gotten heated, in a letter sent to shareholders (via the Los Angeles Times), the WBD board claimed Paramount had attempted to mislead shareholders in its efforts to acquire WBD: "[Paramount] has consistently misled WBD shareholders that its proposed transaction has a 'full backstop' from the Ellison family." Ted Sarandos, on the other hand, said the following about the decision in a statement:
"The Warner Bros. Discovery Board reinforced that Netflix's merger agreement is superior and that our acquisition is in the best interest of stockholders. This was a competitive process that delivered the best outcome for consumers, creators, stockholders and the broader entertainment industry. Netflix and Warner Bros. complement each other, and we're excited to combine our strengths with their theatrical film division, world-class television studio, and the iconic HBO brand, which will continue to focus on prestige television. We're also fully committed to releasing Warner Bros. films in theaters, with a traditional window, so audiences everywhere can enjoy them on the big screen."
Netflix's co-CEO Greg Peters also stated: "By acquiring Warner Bros., we'll be able to offer audiences and creators around the world even more choice, value and opportunity. This transaction is fundamentally pro-consumer, pro-innovation, pro-creator and pro-growth. Together we will deliver an even broader selection of great series and films that audiences can watch at home and in theaters, while driving long-term value for our stockholders. We're excited to begin this new chapter and continue to entertain and delight fans around the world."
Chair of the board of directors at Warner Bros. Discovery, Samuel A. Di Piazza, Jr., said in a statement that the board had rejected Paramount's offer due to finding its value "inadequate, with significant risks and costs" for shareholders (via The Hollywood Reporter):
"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. 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."
Things aren't over for Paramount, however. For starters, David Ellison is not backing down. In a statement, the Paramount Skydance CEO said (via Bloomberg): "Our proposal clearly offers Warner Bros. shareholders superior value and certainty, a clear path to close, and does not leave them with a heavily indebted sub-scale linear business. I have been encouraged by the feedback we have received from Warner Bros. shareholders who clearly understand the benefits of our offer."
It had been previously reported by Semafor that Warner Bros. Discovery had been motivated to reject the offer due to concerns regarding the source of the company's funding. Specifically, the company had concerns about the Middle Eastern sovereign funds involved, and Larry Ellison's (David Ellison's father) fluctuating Oracle stock. A filing submitted by the company (detailed by THR) listed the specific amounts contributed by the sovereign funds, which it considered risky. Per the trade, the Qatar Investment Authority contributed $7 billion, Saudi Arabia's Public Investment Fund putting in $10 billion, and Abu Dhabi $7 billion.
According to Bloomberg, another concern raised was that Paramount could "terminate the deal at any time." Speaking to CNBC, the aforementioned WBD Board of Directors Chair Piazza, Jr., said about rejecting the offer:
"Some of the proposals gave multiple ways for that equity stack to disappear. Now [Larry Ellison] guaranteed it through an irrevocable trust at the last minute. And frankly, that wasn't as good as an investment-grade company that purported strong value, great response to our concerns of what it took to operate. I have enormous respect—as does the board—for the Ellison family and for the Paramount company. They just didn't measure up on these bids."
The offer also included support from Jared Kushner's private equity firm, Affinity Partners. However, prior to the announcement of WBD rejecting the hostile offer, Bloomberg revealed Kushner had backed out of the hostile bid. Per the report, Kushner being the son-in-law of President Donald Trump—who had said he would review the deal—"drew a lot of unwelcome attention."
Perhaps most prominently, Warner Bros. Discovery also said it considers Netflix and Paramount as having the same odds of being approved by regulators in a merger. Per THR, the hostile bid was expected to be rejected, given that it involved the same amount Paramount submitted in the second round of bids. Now, as mentioned, Netflix appears to have a more straightforward path to securing WBD. Still, this is not the end of the plot, though, as, according to The Hollywood Reporter, David Ellison is likely to submit a higher bid for the studio.