The temperature is rising in the Warner Bros. Discovery chase, with key figures at Netflix and Paramount ridiculing the other companies’ merger proposals.
Netflix, running what might be termed Operation Reassure Wall Street, has recently made Co-CEOs Ted Sarandos and Greg Peters available to consumer media outlets with sizable finance and entertainment audiences. The pair also spent much of last Tuesday’s fourth-quarter earnings interview stumping for their company’s pending $82.7 billion offer to acquire WBD’s studios-and-streaming division.
In the latest messaging, via the Financial Times (which came a week after Sarandos spoke to the New York Times), Peters amped up the rhetoric a bit. He said Paramount’s hostile bid for WBD “doesn’t pass the sniff test” because of the “crazy” amount of debt it would entail. Gerry Cardinale, head of major Paramount backer RedBird Capital, hit back, dismissing the streaming giant’s proposal as “smoke and mirrors.”
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While many of Peters’ points covered familiar ground, he sometimes ventured outside of the usual talking points. “Without Larry Ellison independently financing this thing, there’s no chance in hell Paramount would ever be able to pull this off,” Peters said, referring to the co-founder of Oracle, who is one of the richest people in the world. Ellison’s son, David, is CEO of Paramount.
Earlier this week, Paramount filed a preliminary proxy with the SEC, signaling the beginning of a fight for control of the WBD board of directors that is expected to play out in the coming weeks. Since launching its hostile bid and appealing directly to shareholders, Paramount has managed to get just 7% of shareholders on its side. The company just extended the deadline for the tender offer to February 20, and WBD plans to convene a special meeting of shareholders to vote on the transaction.
Speculation now centers on whether Paramount will raise its offer, which is at $30 a share.
“If they were to move [higher], what kind of leverage would they have to have?” Peters asked in the FT interview. “It’s hard to imagine how that works out well. … It doesn’t pass the sniff test in my mind.” The WBD board and shareholders agree, he added.
Cardinale’s objection to the Netflix proposal is that it is predicated on the planned split of Discovery Global (parent of legacy cable networks) from the studios-and-streaming unit later this year. Paramount has argued that the “stub” that would be left behind after the split would be essentially worthless to shareholders given the rapid decline of linear cable TV. Netflix and WBD partisans have said that the parts of Discovery, especially CNN, could have significant value if they were to be sold off separately.
“Our leverage is nowhere near what they’re talking about,” Cardinale said. Given that the Netflix transaction would require a large amount of debt to be transferred to Discovery Global, he added, “The Netflix deal is the Harry Houdini of deals.”
Netflix shares have dropped nearly 30% since the company emerged as a suitor for Warner, a decline that could help persuade shareholders to back Paramount’s bid. Peters acknowledged to the FT that the speculation around the deal, which also faces a 12-to-18-month regulatory review phase before it can close, has weighed on the company’s stock. “I just sort of try and tune out some of the noise and just focus on what we can control,” he said. “Let’s keep moving things forward.”