Warner Bros. Rejects Paramount’s Revised Offer, But Remains Open to Final Bid

　　Warner Bros. on Tuesday rejected Paramount’s latest hostile takeover bid of $30 per share but gave Paramount seven days to submit a “best and final” offer.

　　Warner Bros. stated that Paramount had informally proposed a higher price of $31 per share, which clearly attracted the board’s attention. However, Warner Bros.’ response to Paramount indicated that they preferred to strike a deal with Netflix, and that the possibility of changing the deal was minimal.

　　Warner Bros. said Paramount must submit a new offer by February 23, and according to the terms of the merger agreement, Netflix would have the right to match it.

　　Warner Bros. chairman Samuel DiPiazza Jr. and CEO David Zaslav said in a Tuesday letter to Paramount’s board: “Our board has not determined that your proposal has a reasonable possibility of resulting in a transaction superior to the Netflix merger. We will continue to recommend and fully support the transaction with Netflix.”

　　The two media giants have been competing for control of Warner Bros., its flagship film and television studios, and its vast content library, a contest highlighting the high stakes brought on by the rapidly changing landscape of the entertainment industry.

　　From classics like “Casablanca” and “Citizen Kane” to popular hits like “Friends” and “Batman,” Warner Bros.’ extensive film and television content library would become the property of the acquirer.

　　In the letter, Warner Bros. indicated that it expected a bid higher than $31 per share, especially since a Paramount financial adviser had verbally informed them that if Warner Bros. restarted deal talks, Paramount would agree to this price, and this was not its best offer.

　　Paramount shares rose 3.5%, while Warner Bros. was up 2.5% in pre-market trading. Netflix shares rose about 1%.

　　Paramount’s current offer for the whole company is $108.4 billion, while Netflix’s offer for only its studios and streaming business is $27.75 per share, or $82.7 billion.

　　The shareholder vote on the Netflix deal is scheduled for March 20

　　Warner Bros. rejected Paramount’s proposal to acquire the entire company and will hold a vote on Netflix’s bid on March 20.

　　If the merger is approved, Warner Bros. will spin off its Discovery Global cable TV operations, including CNN, TLC, FoodNetwork, and HGTV, into a separate publicly traded company.

　　According to Warner Bros., Discovery Global’s share price could be between $1.33 and $6.86 per share.

　　Warner Bros.’ decision to work with Paramount marks a shift for the company.

　　Paramount once stated that, in the twelve weeks prior to Warner Bros.’ December 5 announcement of a merger agreement with Netflix, the board “never meaningfully engaged with them on any of the six different offers proposed by executives.” Days later, Paramount’s hostile takeover attempt was rejected later that month.

　　Pressure from Activists Intensifies

　　Paramount’s revised takeover offer, which included a personal guarantee of $40 billion in equity from Oracle founder Larry Ellison (the father of Paramount CEO David Ellison), was rejected in early January.

　　Amid mounting pressure from activist investor Ancora Holdings, which now holds Warner Bros. shares and plans to oppose the Netflix deal, the company also began talks with competitors.

　　Paramount is also pushing to add directors to the Warner Bros. board and is considering Pentwater Capital Management CEO Matt Halbower as a potential nominee, according to Halbower last week. Pentwater holds about 50 million shares of Warner Bros. stock and supports Paramount’s bid.

　　Halbower said in an interview last week: “Every substantive dissatisfaction Warner Bros.’ board had with Paramount’s previous offers has been addressed.”

　　To negotiate with Paramount, the Warner Bros. board obtained a special waiver from Netflix. According to the agreement between the two parties, Warner Bros. can only negotiate with a competitor if the board believes a rival bid could be superior, triggering a legal loophole that, while restricting talks, still allows for limited negotiations.

　　Netflix stated that the deal has reached a milestone, and Warner Bros. shareholders will vote on the merger next month.

　　Netflix said: “While we believe our deal offers greater value and certainty, we also recognize the disruption PSKY’s unusual behavior has caused for WBD shareholders and the broader entertainment industry.”

　　Financing Issues Cast a Shadow over Paramount’s Proposal

　　Last week, in an effort to win over Warner Bros. shareholders without raising its $30-per-share offer, Paramount increased its previous bid.

　　Instead, Paramount offered Warner Bros. shareholders additional cash to be paid each quarter after this year if the deal is not completed, and agreed to pay the $2.8 billion breakup fee owed by the HBO owner if it exits the Netflix deal.

　　Warner Bros. stated that the revised merger agreement with Paramount still did not meet what its board considered a superior proposal.

　　The Warner board wrote that Paramount’s proposal still left key issues unresolved, including who would bear the potential $1.5 billion in junior lien financing costs, what would happen if debt financing failed, and whether the equity financing backed by lead sponsor Larry Ellison was fully secured.

　　The letter stated that although Paramount believed the financing issues “were not significant” because “your primary equity sponsor is personally very wealthy and your lending banks are reputable,” the draft agreement requires that if debt financing cannot be obtained, additional equity funding must be provided to ensure the deal can still be completed.

　　Ancora, which holds nearly $200 million worth of shares, stated last week that the Warner Bros. board had not sufficiently negotiated with Paramount regarding a rival offer for the entire company, including cable TV assets such as CNN and TNT.

　　The deal is also expected to face intense regulatory scrutiny, as consumers worry about price increases and creative professionals about potential harm.

　　Both Paramount and Netflix stated they are in contact with global competition authorities, including the U.S. Department of Justice.

Editor: Li Tong