Paramount's financial condition and creditworthiness questioned by Warner Bros board
Warner Bros Discovery's board today rejected Paramount Skydance's $108.4 billion hostile bid, saying it failed to provide adequate financing assurances.
In a letter to shareholders, disclosed in a regulatory filing, the board wrote that Paramount had "consistently misled" Warner Bros shareholders that its $30-per-share cash offer was fully guaranteed, or "backstopped," by the Ellison family, led by billionaire and Oracle CEO Larry Ellison.
"It does not, and never has," the board wrote of the guarantee of Paramount's offer, noting that the offer posed "numerous, significant risks."
Warner Bros' board also said it found Paramount's offer "inferior" to the merger agreement with Netflix'sNFLX.O. The streaming giant's $27.75 per share offer for Warner Bros' film and television studios, its library and the HBO Max streaming service is a binding agreement that requires no equity financing and has robust debt commitments, the board wrote.
Paramount and Netflix did not immediately respond to Reuters requests for comment.
Warner Bros shares were down 0.5% at $28.7 in premarket trading, while Netflix gained 1.7% and Paramount fell 2.2%.
Paramount last week took its case directly to Warner Bros shareholders, arguing that it has arranged "air-tight financing" to support its bid, with $41 billion in new equity assured by the Ellison family and RedBird Capital, and $54 billion of debt commitments from Bank of America, Citi and Apollo.
The Warner Bros Discovery board countered today that Paramount's most recent offer includes an equity commitment "for which there is no Ellison family commitment of any kind," but rather the backing of "an unknown and opaque" Lawrence J. Ellison Revocable Trust, whose assets and liabilities are not publicly disclosed and are subject to change.
"Despite having been told repeatedly by WBD how important a full and unconditional financing commitment from the Ellison family was...the Ellison family has chosen not to backstop the PSKY offer," the Warner Bros board wrote. "A revocable trust is no replacement for a secured commitment by a controlling shareholder."
A drone view shows the Warner Bros. studio lot in Burbank, California, U.S., (REUTERS/Mike Blake)
Paramount has submitted a total of six bids to acquire the entire Warner Bros studio, including its television networks, including CNN and TNT Sports.
It has previously said the Ellison family trust - which Paramount says contains more than $250 billion in assets including about 1.16 billion shares of Oracle - is more than adequate to cover the equity commitment.
"To suggest that we are not 'good for the money' (or might commit fraud to try to escape our obligations), as certain reports have speculated, is absurd," Paramount wrote in a letter to Warner Bros' shareholders last week. Its debt commitments are not conditioned on Paramount's financial condition, it wrote.
Warner Bros, however, pointed in the filing today to what it described as structural risks in Paramount’s proposed financing, and also raised questions about Paramount's financial condition and creditworthiness.
The offer relied on a seven-party, cross-conditional structure, with the Ellison Revocable Trust providing just 32% of the required equity commitment while capping its liability at $2.8 billion, Warner Bros said. It noted that the trust’s assets could be withdrawn at any time.
(Reporting via Reuters)
