Warner rejects Paramount's offer once more, pointing to concerns over the suggested debt burden

Paramount's Pursuit of Warner Bros. Discovery Faces Major Setback

Paramount, headquartered in Hollywood, continues its efforts to acquire Warner Bros. Discovery, but its latest attempt has once again been rejected by Warner's board of directors.

(Robert Gauthier/Los Angeles Times)

Warner Board Rejects Paramount's Latest Offer

On Wednesday, Warner Bros. Discovery's board unanimously turned down Paramount's most recent acquisition proposal, citing the immense debt Paramount would need to secure for its $108 billion bid.

The board determined that the offer—backed by tech mogul Larry Ellison and Middle Eastern royal investors—did not serve the best interests of the company or its shareholders.

This marks the sixth time since September that Warner's board has declined Paramount's advances, which began when Paramount CEO David Ellison first expressed interest in purchasing the larger media company.

Concerns Over Debt and Deal Structure

In a letter to investors, Warner's board highlighted that Paramount Skydance is valued at $14 billion, yet the acquisition would require nearly $95 billion in combined debt and equity—almost seven times Paramount's market capitalization.

Warner described the proposal as resembling a leveraged buyout, noting that if completed, it would be the largest such deal in U.S. history.

The board emphasized that the significant debt involved and other terms of the offer increased the likelihood that the deal would fall through, especially when compared to the more certain Netflix merger. Warner encouraged shareholders to support its preferred plan to sell most of the company to Netflix.

Pressure Mounts on Paramount

The rejection increases the pressure on Paramount to either secure additional funding or raise its cash offer above $30 per share.

However, increasing the bid without adding more equity would only further inflate the debt Paramount would need to acquire assets like HBO, CNN, TBS, Animal Planet, and the Warner Bros. studios in Burbank.

Paramount did not immediately respond to requests for comment.

Netflix Deal Gains Momentum

Just a month ago, Warner's board agreed to sell a significant portion of the company to Netflix for $72 billion, reaffirming its support for the deal on Wednesday. This transaction would transfer iconic properties—including HBO, DC Comics, and the Warner Bros. film studio—to Netflix, which has offered $27.75 per share.

Netflix co-CEOs Ted Sarandos and Greg Peters stated, "By joining forces, we will deliver even more beloved series and films to audiences at home and in theaters, create new opportunities for creators, and help ensure a vibrant, competitive entertainment industry."

Paramount's Hostile Approach

After Warner and Netflix reached their agreement on December 4, Paramount escalated its efforts by appealing directly to Warner shareholders, setting a January 21 deadline for its tender offer.

Warner's board has repeatedly advised shareholders to ignore Paramount's proposals.

Industry Impact and Background

The potential sale of Warner Bros. comes amid widespread cutbacks in the entertainment sector and could trigger further downsizing.

Since acquiring control of Paramount in August, the Ellison family has made bold moves, such as a $7.7 billion deal for UFC events and significant layoffs, including over 2,000 job cuts. Paramount also owns the CBS network.

Warner Bros. Discovery was created in 2022 after AT&T sold WarnerMedia to Discovery, a smaller cable programming company. Discovery took on substantial debt to finance the $43 billion acquisition, and CEO David Zaslav has spent years reducing staff and canceling projects to manage that debt.

According to Warner, Paramount would need to assume more than $60 billion in additional debt to acquire all of Warner Bros. Discovery.

Future Plans and Market Uncertainty

Warner has suggested that shareholders could benefit more if the company proceeds with spinning off its cable channels, including CNN, into a new entity called Discovery Global later this year. This move is necessary for the Netflix deal, as Netflix is only acquiring the Warner Bros. studios, HBO, and HBO Max.

However, the recent launch of Versant—a company formed from CNBC, MS NOW, and other former Comcast channels—has introduced uncertainty, with Versant's stock dropping 19% in its first two days of trading.

Warner's board previously rejected three Paramount offers before opening the bidding to other companies in late October. The board also turned down Paramount's all-cash offer of $30 per share on December 4 and dismissed a subsequent hostile bid two weeks later.

Initially, Warner expressed concerns about the lack of clarity regarding Larry Ellison's financial backing for Paramount's bid. Ellison later agreed to personally guarantee $40.4 billion in equity financing for the deal.

Ongoing Disputes and Outlook

David Ellison has argued that Warner Bros. Discovery has not given Paramount's offer fair consideration, maintaining that his company's bid would be more lucrative than the Netflix deal.

Warner's board, in a recent letter, stated that Paramount's transaction team—including employees, legal advisors, and financial consultants—had ample opportunity to engage with Warner Bros. Discovery. The board reiterated that the Netflix agreement is superior to Paramount's proposal.

This article was originally published in the Los Angeles Times.