Paramount sues Warner Bros. Discovery over its deal with Netflix
David Ellison’s Paramount has sued Warner Bros. Discovery — the smaller firm’s latest move to block Warner’s $72-billion sale to Netflix. The lawsuit, filed Monday morning in Delaware court, asks Warner and its chief executive, David Zaslav, to produce more information about Warner’s deliberations and decision to select Netflix, ending the hotly contested auction on Dec. 4. Last week, Warner’s board unanimously rejected Paramount’s $30-a-share proposal that included a personal guarantee by Ellison’s father, the tech billionaire Larry Ellison, to cover the equity portion of Paramount’s deal. Paramount Skydance is waging a hostile takeover, asking Warner investors to sell their shares to Paramount.Its lawsuit contends that Warner’s board breached its disclosure duties “by failing to provide full, accurate, and truthful information” to investors. Paramount, however, stopped short of asking the court to block the Netflix deal. Instead, Paramount said it was simply seeking access to information to allow shareholders to evaluate the competing offers — Paramount’s or Netflix’s — “while reserving the right to seek further relief as appropriate.” Separately, David Ellison said Paramount was preparing a proxy fight and would nominate its own slate to serve as Warner’s board.The move came the morning after the Golden Globes ceremony in Beverly Hills, in which Zaslav’s warm relations with Ted Sarandos, Netflix’s co-chief executive, were on display. Both Warner Bros. Discovery and Netflix had a strong night at the award show, which was televised by Paramount’s CBS network. Warner Bros. Discovery on Monday dismissed Paramount’s lawsuit as “meritless,” and an attempt to distract shareholders by lobbing “attacks on a board that has delivered an unprecedented amount of shareholder value.”“Despite six weeks and just as many press releases from Paramount Skydance, it has yet to raise the price or address the numerous and obvious deficiencies of its offer,” Warner Bros. Discovery said. “In spite of its multiple opportunities, Paramount Skydance continues to propose a transaction that our board unanimously concluded is not superior to the merger agreement with Netflix.”Paramount has asked for an expedited trial. In its lawsuit, Paramount accused Warner board members of misleading shareholders and concealing its financial analysis on how much Warner’s basic cable channels, including CNN, HGTV, Food Network and TNT, are worth. Netflix’s $27.75 a share offer does not include Warner’s cable channels. Netflix is interested only in HBO, HBO Max streaming service and the venerable Warner Bros. television and movie studios. In contrast, Paramount’s $78-billion offer is to take over all of Warner, including the TV channels. Warner in the summer announced plans to spin off its basic cable channels into a new company, Discovery Global. Its investors will get stock in the new company. The proposed new shares have not been priced, and Paramount argues they will probably be worth less than $1 a share. “We have analyzed [the Discovery Global channels] as having zero equity value,” Ellison wrote to shareholders. That math makes Paramount’s $30-a-share offer higher than Netflix’s proposed cash and stock transaction, Paramount argues.Netflix declined to comment.Neither Netflix nor Paramount has raised its bid since the submitted formal proposals on Dec. 4. Paramount, in its lawsuit, alleged that Warner board members acted hastily, approving Netflix’s deal — its total enterprise value would be $82.7-billion — even though Paramount told Zaslav and Warner’s top banker on Dec. 4 that it hadn’t submitted its “‘best and final’ offer.” Paramount has submitted eight proposals to Warner since Sept. 14.In a Monday letter to shareholders, David Ellison wrote that Warner has “provided increasingly novel reasons for avoiding a transaction with Paramount.”“Paramount started this process about four months ago with a private offer at a significant premium to WBD’s $12.54 share price, and our pursuit culminated in the $30 per share all-cash, fully financed proposal we made before WBD entered into the Netflix transaction,” Ellison wrote.“We are committed to seeing our tender offer through,” Ellison said. “We understand, however, that unless the WBD board of directors decides to exercise its right to engage with us under the Netflix merger agreement ... this will likely come down to your vote at a shareholder meeting.”Paramount did not say who it intends to nominate to Warner’s board, but they will be tasked with selecting Paramount as the auction winner.The company has set a Jan. 21 deadline for Warner investors to tender their shares, although that deadline could be extended. In its court documents, Paramount said “any decision concerning an extension will depend, in part, on the number of shares tendered.”Paramount’s deal, including debt, tops $108 billion. The firm must come up with nearly $41 billion in equity. Larry Ellison has pledged to provide $11.8 billion, Saudi Arabia’s sovereign wealth fund would contribute $10 billion, and Qatar’s and Abu Dhabi’s funds would each chip in $7 billion. Saudi Arabia’s Public Investment fund has separately led a group in a $55-billion takeover of videogame developer Electronic Arts, which is so far the largest leveraged buyout.But Warner has waved a cautionary flag, saying its takeover by Paramount would require more than $60 billion in debt — making that a significantly larger leveraged buyout. Paramount has long asserted that it represented the best choice for Warner Bros., and has alluded to the Ellison family’s friendly relations with President Trump and his administration. Paramount says it has a straightforward path to regulatory approval, whereas Netflix must contend with concerns about its increasing market power.Over the weekend, Trump on his social media website shared a link to a month-old opinion piece critical of Netflix’s deal. The December column, by lawyer John M. Pierce, ran on the right-wing One America News digital site. “It is time to say no to a woke media monopoly before the damage becomes impossible to reverse,” Pierce wrote. Paramount stock closed Monday at $12.15 per share. Warner Bros. Discovery slipped nearly 2% to $28.40. Netflix ended the trading day at $89.41. Its shares have lost nearly 18% of their value since the first week of December, when the company submitted its winning bid for Warner.Ellison began his letter to Warner shareholders by saying his firm has repeatedly been asked about its going-forward strategy in light of Warner’s firm resistance.“Paramount is committed, my family is committed, and hopefully this helps answer the question of what comes next,” Ellison wrote.
