By Dawn Chmielewski, Kritika Lamba and Dawn Kopecki LOS ANGELES, Jan 7 (Reuters) – Warner Bros Discovery's board unanimously turned down Paramount Skydance's latest attempt to acquire the studio, saying its revised $108.4 billion hostile bid amounted to a risky leveraged buyout that investors should reject. In a letter to shareholders on Wednesday, Warner Bros' board said Paramount's offer hinges on "an extraordinary amount of debt financing" that heightens the risk of closing. It reaffirmed its commitment to streaming giant Netflix's $82.7 billion deal for the film and television studio and other assets. Paramount and Netflix have been in a heated battle for Warner Bros, its prized film and television studios, and its extensive content library. Its lucrative entertainment franchises include "Harry Potter," "Game of Thrones," "Friends" and the DC Comics universe, as well as coveted classic films such as "Casablanca" and "Citizen Kane." The Warner Bros board voted against the $30-per-share cash offer on Tuesday, telling shareholders that Paramount's financing plan would saddle the smaller Hollywood studio with $87 billion in debt once the acquisition closed, making it the largest leveraged buyout in history. The letter accompanied a 67-page amended merger filing where it laid out its case for rejecting Paramount's offer. NETFLIX DEAL ON TRACK The revised Paramount offer "remains inadequate particularly given the insufficient value it would provide, the lack of certainty in PSKY’s ability to complete the offer, and the risks and costs borne by WBD shareholders should PSKY fail to complete the offer," the Warner Bros board wrote. Their assessment comes even after Paramount, which has a market value of around $14 billion, proposed to use $40 billion in equity personally guaranteed by Oracle billionaire co-founder Larry Ellison – father of Paramount CEO David Ellison – and $54 billion in debt to finance the deal. The decision keeps Warner Bros on track for its deal with Netflix, even after Paramount amended its bid on December 22 to address the earlier concerns about the lack of a personal guarantee from Larry Ellison. Netflix co-CEOs Ted Sarandos and Greg Peters welcomed Warner Bros' decision on Wednesday, saying it recognizes the streaming giant's deal "as the superior proposal that will deliver the greatest value to its stockholders, as well as consumers, creators and the broader entertainment industry." Paramount's financing plan would further weaken its credit rating, which S&P Global already rates at junk levels, and strain its cash flow – heightening the risk that the deal will not close, the Warner Bros board said. Netflix, which has offered $27.75 a share in cash and stock, has a $400 billion market value and investment-grade credit rating. Paramount did not respond to a request for comment. Both Warner Bros and Netflix shares rose 0.6% while Paramount dipped 0.6%. TILTING THE POWER BALANCE IN HOLLYWOOD The bidding war has become Hollywood's most closely watched takeover battle, as studios confront a landscape increasingly dominated by streaming platforms and as theatrical revenues remain volatile. While Netflix's offer has a lower headline value, some analysts have said it presents a clearer financing structure and fewer execution risks than Paramount's bid for the entire company, including its cable TV business. "WBD does not want to sell to Paramount, so it will keep rejecting Paramount as long as it is able to," Ross Benes, analyst at Emarketer, said. Harris Oakmark, Warner Bros' fifth-largest investor, previously told Reuters that Paramount's revised offer was not "sufficient," noting it was not enough to cover the breakup fee. However, Mario Gabelli, whose Gabelli Funds holds about 5.7 million shares of Warner Bros Discovery, according to LSEG data, said he is “likely” to tender his shares to Paramount, saying its all-cash offer is more straightforward and thus would have a faster path to regulatory approval. “At the moment, Paramount has a superior bid,” said Gabelli. “Netflix has to simplify their bid.” Pentwater Capital, the 7th-largest shareholder, argued in favor of Paramount, as well, according to a letter the firm sent to Warner Bros, saying the board was making a mistake not engaging with Paramount. DISCOVERY A STICKING POINT The valuation of Warner Bros' planned Discovery Global spin-off, which includes cable television networks CNN, TNT Sports and the Discovery+ streaming service, is seen as a major sticking point. Analysts peg the cable channels' value at up to $4 per share, while Paramount has suggested just $1. Lawmakers from both parties have raised concerns about further consolidation in the media industry, and U.S. President Donald Trump has said he plans to weigh in on the landmark acquisition. Warner Bros Chairman Samuel Di Piazza told CNBC that the company was not currently in talks with Paramount but remains open to a transaction, saying both deals have a path to regulatory approval. "They've got to put something on the table that is compelling," he said, referring to Paramount. Warner Bros' board met on December 23 to review Paramount's amended offer. The filing noted some improvements, including Ellison's personal guarantee and a higher reverse termination fee of $5.8 billion, but found "significant costs" associated with Paramount's bid compared with Netflix. Warner Bros would be obligated to pay the streaming service a $2.8 billion termination fee for abandoning its agreement with Netflix, part of $4.7 billion in additional costs to end the deal. The board repeated other concerns previously laid out, such as that Paramount would impose operating restrictions on the studio that would harm its business and competitive position, including barring the planned spin-out of the company's cable television networks into a separate public company, Discovery Global. (Reporting by Dawn Chmielewski in Los Angeles and Dawn Kopecki in New York, Kritika Lamba in Bengaluru, additional reporting by Akash Sriram and Arnav Mishra. Editing by Sayantani Ghosh, Jamie Freed and Nick Zieminski)
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