Some investors criticized the board’s rejection of Paramount’s offer, citing better regulatory prospects
Some of Warner Bros. Discovery’s biggest investors are split on Paramount Skydance Sweet offer For a storied movie studio owner, a small media company has a fighting chance to win over shareholders.
Investors have until January 21 to accept Paramount’s latest $108.4bn offer, at $30 a share, an offer Warner Bros’ board said was inferior to a deal to sell Netflix.
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Although the Stranger Things maker is only offering $27.75 a share, or $82.7bn, Warner Bros says the financing is more solid and the Paramount deal would leave the merged company heavily indebted.
Alex Fitch, a partner and portfolio manager at Harris Oakmark, who owned about 96 million shares, or 4 percent of Warner Bros. as of Sept. 30, agreed with the board.
“The value is still not clearly superior to what has already been agreed with Netflix. A tie goes into the position,” Fitch told Reuters in an email.
Fees and loan risk
Although Paramount’s offer is, on its face, high, Warner Bros said it would cover a $2.8bn breakup fee to Netflix, a $1.5bn fee to its bankers and another $350m in financing costs.
A smaller investor, Youssef Gheriani, chief investment officer of IHT Wealth Management, which owns about 16,000 Warner Bros. shares, said in an email that the board’s decision to reject Paramount’s offer made sense because the increase in total value was not worth the breakup fees and borrowing costs. Warner Bros. said the deal would give the combined company $87 billion in debt.
But Matthew Halbower of Pentwater Capital Management, who said he owns more than 50 million shares, feels differently. He said in a letter to Warner Bros. Chairman Samuel DiPiazza on Wednesday that the board “breached its fiduciary duty” to shareholders by rejecting Paramount’s offer out of hand, saying it was a good deal and had a good chance of clearing regulatory scrutiny.
Warner Bros.’s board is “choosing not to inquire about what improvements Paramount is willing to make to its offer,” he said in the letter, which was reviewed by Reuters. If Paramount eventually raises its $30-per-share offer, the Warner Bros. board must at least talk to the suitor or his firm will not support any Warner Bros. directors in their next election, Hallbauer wrote.
Mario Gabelli, whose Gabelli Fund owns about 5.7 million Warner Bros. shares, according to LSEG data, said he was “likely” to sell his shares to Paramount. He said its all-cash offering was more straightforward and would have a faster path to regulatory approval.
“At the moment, Paramount has an excellent bid,” Gabelli told CNBC. “Netflix has to simplify their bid.”
Harris Oakmark, who is Warner Bros.’s fifth-largest shareholder, is open to a switch. “If they (Paramount) come back to the table with a clearly superior offer, we have every confidence the WBD board will engage,” Fitch said.
It’s not often that a marquee media property like Warner Bros., which owns HBO Max, comes on the market and a bidding war begins. Its extensive content library includes Harry Potter and the DC Comics universe. Its HBO Max streaming service recently acquired the US and Australian distribution rights to the runaway hit Canadian hockey romance Heated Rivalry.
Warner Bros.’ top three shareholders are large passive fund managers Vanguard, State Street and BlackRock, which together control about 22 percent. All three are among the top 10 investors in Paramount and Netflix.
On Wall Street, Warner Bros. stock was down 0.7 percent while Paramount stock was up 0.7 percent in midday trading. Netflix is trending down 0.2 percent below the market open.