Paramount’s Hostile Bid for Warner Bros. Discovery Explained
Here is everything you need to know about Paramount’s hostile bid for Warner Bros Discovery that threatens to shake-up Hollywood.
In what may be the biggest merger in the history of Hollywood, there’s been a lot of chaos that’s come with it. A big part of that chaos comes from a fascinating move from Paramount Skydance in an attempt to win over the shareholders of Warner Bros. Discovery. Here is everything you need to know about Paramount’s hostile bid for Warner Bros. Discovery.
To understand the situation, it’s important to know the context. Netflix, Universal, and Paramount were in a bidding war for Warner Bros. Discovery. There were multiple rounds of bids, and eventually Warner Bros. singled out Netflix to make a deal with.
Eventually, Netflix agreed to acquire Warner Bros including its film and TV division, for $82.7 billion, which values Warner Bros. Discovery stock at $27.75 per share of which $23.25 would be cash and the remaining $4.5 would be in Netflix stock. Discovery Global would separate into a new publicly traded company, which Netflix will not own or operate.
Paramount Skydance CEO David Ellison was reportedly blindsided by the deal as he felt they were still negotiating. In an attempt to thwart the Netflix deal, Paramount decided to initiate a hostile bid to acquire Warner Bros. Discovery as a whole.
Paramount, as of today, is offering an all-cash offer of $30 per share for Warner Bros. Discovery as a whole without any separation for Discovery Global. This would come out to $108.4 billion. The deal is being backed by David Ellison’s father, Larry Ellison, along with sovereign wealth funds from Saudi Arabia’s Public Investment Fund, Abu Dhabi’s L’imad Holding Company, and the Qatar Investment Authority.
What is a Hostile Bid?
You may be wondering what exactly a hostile bid or a hostile takeover is. A hostile bid is an offer made to shareholders in order to get them to go against the board of directors to make a deal. In essence, a board of directors for Warner Bros. agreed to take Netflix’s offer for the company. However, shareholders would still be the ones voting on whether to take the deal or not.
Paramount is trying to get shareholders to vote no to the Netflix deal and instead accept their deal, where they would get $30 for every share of WBD they own. If Paramount is able to get 51% or more of WBD stock from shareholders, it would control the company and be able to accept any deals to own all of it. It is to be noted that there are many legal obstacles that come with this.
The Ellison family is not a stranger to hostile takeovers, as Larry Ellison as the CEO of Oracle, did the same to PeopleSoft, a software company. Oracle offered a hostile bid to shareholders, which was initially rejected, but they kept increasing their offer until shareholder pressure reached the board of directors, who ended up finally giving in and letting Oracle buy the company a year and a half later.
What Happens Next?
It’s been reported that David Ellison will keep on offering more, just like Oracle did for PeopleSoft. What happens at that point is up to Netflix. Netflix can either keep the bidding war going or they can bow out at any point. If Paramount is able to keep on increasing the offer and Netflix bows out, it comes down to the board of directors to negotiate a deal that shareholders would accept.
If Paramount is able to convince Warner Bros. Discovery not to take the Netflix deal, then Warner would have to pay Netflix $2.8 billion as a breakup fee. If Netflix themselves don’t go through with a deal then they would have to pay $5.8 billion to Warner Bros. Discovery.
By December 22nd, Warner Bros. Discovery’s board of directors must tell shareholders what their recommendation for Paramount’s deal is. In essence, it means they should tell their shareholders if the deal is in the best interest of shareholders and whether to sell their shares or not.
The deal for any Warner Bros. Discovery shareholders to sell their shares for $30 is open until January 8th. After that Paramount can choose to extend that date or increase their offer depending on what happens with the board of directors.
What is most likely to happen at this stage is the board of directors’ motion to reject Paramount’s offer after which Paramount will increase its offer to the point where it becomes more compelling, and the ball goes to Netflix’s court on whether they keep going or not. If they do then it becomes anyone’s game but if they decide to stick with their offer, then Paramount will likely up their offer until the board of directors accepts.
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