Warner Bros. Discovery again rejects Paramount bid, calls it ‘leveraged takeover’

The bidding war for Warner Bros. Discovery (WBD) and its extensive library of hit TV shows and movies such as ‘Harry Potter’, ‘Game of Thrones’ and DC Comics titles, continues.

The studio on Wednesday said its board unanimously rejected Paramount Skydance’s revised $108.4 billion offer, calling the proposal a “leveraged takeover” that would saddle the company with $87 billion in debt.

In a letter to shareholders, WBD urged them to reject the offer, saying the “extraordinary amount” of debt Paramount would have to raise increases the risk that the deal will fall apart, and instead recommended they vote in favor of the previous $82.7 billion deal with Netflix over its movie and TV studio’s claims.

Paramount, which was rumored to be in the running to buy WBD before the Netflix deal was announced, went directly to WBD shareholders with an all-cash, $30-per-share offer in early December after Warner Bros.’s board decided to sell to Netflix. However, WBD rejected Paramount’s offer, calling the offer “fraudulent” and saying that Paramount did not have the cash to back its claims, and instead recommended Netflix’s cash and stock deal.

Then Paramount came back with one $40 billion guarantee from CEO David Ellison’s billionaire father, Oracle co-founder Larry Ellison, and said it would raise $54 billion in debt to finance the deal.

WBD doesn’t seem convinced. “[Paramount] is a $14 billion company that is attempting a takeover that requires $94.65 billion in debt and equity financing, nearly seven times its total market capitalization […] This aggressive transaction structure poses substantially greater risk to WBD and its shareholders compared to the conventional structure of the Netflix merger,” WBD wrote in a statement.

Warner Bros. also questioned Paramount’s ability to operate well if the deal goes through, arguing that raising such amounts of debt would further worsen Paramount’s current creditworthiness.

Warner Bros. was particularly concerned about Paramounts negative free cash flow, which would be exacerbated by any acquisition. “In contrast, Netflix is ​​a company with a market capitalization of approximately $400 billion, an investment-grade balance sheet, an A/A3 credit rating and estimated free cash flow of more than $12 billion by 2026,” WBD wrote.

Netflix welcome WBD’s decision, saying that after the merger the companies will “combine highly complementary strengths and a shared passion for storytelling.”