WBD-Netflix vs Paramount: Hollywood’s hostile takeover gets nastier

LOS ANGELES & NEW YORK:  Hell hath no fury like a suitor spurned. Paramount Skydance is pulling no punches after Warner Bros. Discovery rebuffed its $30-per-share, all-cash offer to buy the entertainment giant. In a scathing public broadside on 8  January, Paramount essentially called WBD’s board blind, deaf and possibly dim for preferring Netflix’s offer.

The gloves are well and truly off. Paramount has done the maths—repeatedly, publicly, and with exhibits—to show that Netflix’s deal is worth just $27.42 per share today, not the $30-ish originally touted. The culprit? Netflix’s share price has tumbled below its collar, and the planned spin-off of Discovery Global, WBD’s linear television business, looks increasingly like a poisoned chalice.

Discovery Global, Paramount argues with barely concealed glee, is worth precisely nothing. The company points to Versant Media, which debuted shares this week and promptly demonstrated what happens when linear television meets market reality. Using Versant’s trading multiple of 3.8 times forward EBITDA, Paramount values Discovery Global at $0.00 per share. They generously concede it might have up to 50 cents of “M&A option value”—corporate speak for “maybe someone desperate will buy it later.”

It gets worse for WBD shareholders. The Netflix deal contains a nasty catch: if WBD decides to saddle Discovery Global with less debt (you know, like a responsible parent), Netflix pays less cash. Dollar for dollar less. So if WBD opts for sensible 1.25 times leverage—matching Versant—shareholders would get roughly $10bn less in cash and Netflix stock. That’s $3.90 per share vanishing into thin air, replaced by more equity in the worthless stub.

“Our offer clearly provides WBD investors greater value and a more certain, expedited path to completion,” says Paramount chairman and chief executive David Ellison. Translation: take our cash before Netflix’s deal gets any uglier.

Paramount has bent over backwards to address WBD’s concerns, even securing an irrevocable personal guarantee from Larry Ellison (David’s father, in case you wondered where the money comes from) for the equity portion. Bank of America, Citibank and Apollo have committed $54bn in debt financing. The message is clear: the money is real, it’s green, and it’s ready.

WBD’s board, however, remains unmoved. Paramount is now urging shareholders to tender their shares directly, going over management’s head in a move that’s either brilliant or desperate. Perhaps both.
In Hollywood, everyone loves a sequel. This hostile takeover saga promises plenty more episodes. Grab your popcorn—preferably with extra butter, because this is getting messy.