Warner Bros. sticks with Netflix merger, calls Paramount’s $108B bid “illusory”

In a decisive move, the board of Warner Bros. Discovery has unanimously opted to dismiss Paramount's staggering $108.4 billion takeover proposal, urging its shareholders to turn down the hostile offer. Instead, the board continues to champion Netflix’s impending acquisition of its streaming and movie studio segments for $82.7 billion, alongside a planned spinoff of Warner Bros. cable television operations. In a presentation to shareholders, Warner Bros. labeled the Paramount proposal as "illusory," emphasizing that it would necessitate an "extraordinary amount of debt financing." The board indicated that the complexities surrounding the Paramount bid render it less feasible than the merger with Netflix. Warner Bros. noted that if Paramount’s plan proceeds, it would become the largest leveraged buyout in history, burdened with a staggering $87 billion in total pro forma gross debt. Furthermore, the offer is described as an "effectively one-sided option," where Paramount Skydance can alter or withdraw their proposal at any time. Highlighting Netflix's robust financial profile, Warner Bros. contrasted it with Paramount's situation, pointing out that the latter operates with a market capitalization of only $14 billion and a 'junk' credit rating. The presentation also raised concerns about Paramount’s negative free cash flows and significant financial commitments, coupled with a critical reliance on its traditional linear business model. Warner Bros. further informed shareholders that the Paramount offer is unlikely to be realized before its scheduled expiration. In a letter, they stated a preference for Netflix, which boasts a market cap nearing $400 billion, an investment-grade balance sheet, and a solid A/A3 credit rating, alongside an anticipated free cash flow exceeding $12 billion by 2026. The Warner Bros. board emphasized that the Netflix deal allows for greater operational flexibility until closure. Even with their firm stance, Samuel Di Piazza Jr., Chairman of the Warner Bros. Discovery board, hinted during an appearance on CNBC's Squawk Box that they could reconsider if a more attractive offer were presented.