Paramount’s Revised Offer for Warner Bros Falls Short, Investor Says

Paramount Skydance’s latest offer to acquire Warner Bros Discovery has not met the expectations of a significant shareholder, according to a statement made to Reuters. Harris Oakmark, which holds approximately 4 percent of Warner Bros shares, emphasized that while the adjustments made to the bid are necessary, they do not go far enough to warrant acceptance.

Alex Fitch, portfolio manager and Director of U.S. Research at Harris Oakmark, expressed his stance in an email, noting, “The changes in Paramount’s new offer were necessary, but not sufficient. We see the two deals as a toss-up, and there is a cost to changing paths. If Paramount is serious about winning, they’re going to need to provide a greater incentive.”

On December 18, 2023, Paramount amended its initial $108.4 billion hostile bid to enhance its financing structure. Larry Ellison, co-founder of Oracle and father of Paramount’s owner, David Ellison, is personally guaranteeing $40.4 billion of the bid. This step aims to solidify the acquisition of Warner Bros, which oversees popular franchises such as Harry Potter, Lord of the Rings, and Superman, along with the streaming service HBO Max.

Concerns regarding the financing, particularly due to a significant portion being held in a revocable trust, have left some Warner Bros investors uncertain about the offer’s viability. To further sweeten the deal, Paramount increased its breakup fee from $5 billion to $5.8 billion if regulators do not approve the deal, aligning it with a competing offer from Netflix. Despite this, Paramount did not raise its bid of $30 per share.

Warner Bros Shareholder Decisions Loom

Warner Bros investors now have until January 21, 2024, to decide whether to accept or reject the tender offer, an extension from the previous deadline of January 8. Warner Bros’ board of directors unanimously recommended on December 20 that shareholders reject Paramount’s earlier bid in favor of Netflix’s proposal. Although Netflix’s cash offer of $23.25 a share is lower, the board has indicated that its bid is superior due to more secure financing and additional stock options, which include $4.50 in shares of Netflix common stock.

Investment professionals view the bidding war as indicative of the high value associated with Warner Bros’ assets. Yussef Gheriani, chief investment officer at IHT Wealth Management, highlighted the rarity of opportunities to acquire such high-quality media assets. He stated, “It’s really rare to get an opportunity to add top-shelf media assets to your portfolio,” reinforcing his intention to follow the board’s recommendations, citing their expertise in navigating the complexities of the deal.

Investor Thomas Poehling, who owns 484,000 shares of Warner Bros and 639,000 shares of Paramount, indicated a willingness to accept the revised offer if Netflix does not counter. He mentioned that Paramount’s bid has a stronger potential for regulatory approval, partly due to Ellison’s financial guarantee, which adds stability and reduces financing uncertainties.

The competition for Warner Bros is not limited to individual investors. Major institutional shareholders such as Vanguard, State Street, and BlackRock are among the largest shareholders of Warner Bros, collectively holding at least 22 percent of the company. These entities are also significant investors in both Paramount and Netflix, though none of them provided comments for this article.

As the deadline approaches, the stakes remain high for all parties involved, and the final decision by Warner Bros shareholders could reshape the landscape of the entertainment industry.