Warner Bros Discovery moves to snub Paramount Skydance bid

NEW YORK: According to a Reuters report, Warner Bros. Discovery is preparing to tell its shareholders to politely but firmly turn down a hostile takeover bid from Paramount Skydance, after concluding that the proposal brings more questions than answers.

People familiar with the matter say the company’s board, after a close review, believes the offer lacks both value and certainty when compared with Warner Bros. Discovery’s existing strategic agreement with Netflix. A formal recommendation to reject the tender offer could come as early as Wednesday, when the company is expected to file its response. Talks are continuing, and nothing has yet been officially announced.

At the heart of the board’s unease is how the deal would be paid for. Part of Paramount’s financing hinges on equity commitments tied to a revocable trust linked to the fortune of Oracle founder Larry Ellison, whose son David Ellison runs Paramount Skydance. Because the trust can be changed or withdrawn at any time, Warner Bros. Discovery directors have questioned how solid the funding really is, and what protection the company would have if that backing were to evaporate.

Those concerns sharpened this week after one of Paramount’s backers, Affinity Partners, walked away from the deal. The investment firm, led by Jared Kushner, cited the presence of “two strong competitors” as its reason for exiting.

Regulation is another sore point. Directors worry that a prolonged approval process could leave the company stuck in limbo for a year or more, limiting its ability to run the business freely or manage its balance sheet at a critical time.

Paramount has tried to calm nerves. In a recent regulatory filing, it said it had addressed issues around Warner Bros. Discovery’s ability to refinance debt and cover a proposed $5 billion break fee, which it said would be supported by the Ellison family. The bidder has also tweaked elements of its proposal in response to feedback.

Still, hurdles remain. Around $1 billion in financing from China’s Tencent Holdings was dropped from the deal amid concerns it could invite national security scrutiny from US regulators.

Paramount, home to brands such as MTV and the Paramount+ streaming service, has put forward a proposal valuing Warner Bros. Discovery at more than $108 billion including debt. After Warner Bros. unveiled its Netflix agreement, Paramount bypassed the board and went straight to shareholders with a public tender offer.

That Netflix deal restricts Warner Bros. Discovery from actively shopping itself to other suitors, though it can assess unsolicited approaches. If a clearly superior bid emerges, Netflix has the right to match it.

For now, the board appears unconvinced that Paramount’s offer makes the cut.