Paramount's Hostile Bid for Warner Bros. Discovery Intensifies with Ellison's $40 Billion Guarantee

Paramount's Hostile Bid for Warner Bros. Discovery Intensifies with Ellison's $40 Billion Guarantee

The battle for Warner Bros. Discovery (WBD) has taken a dramatic turn as Paramount Global escalates its hostile takeover bid. In a move designed to address concerns raised by the WBD board, Paramount announced Monday that Oracle founder Larry Ellison will personally guarantee $40.4 billion of the equity financing for the $78 billion deal. This bold commitment aims to alleviate doubts surrounding the legitimacy of Paramount's financing, which the WBD board previously deemed "illusory."

Paramount's initial offer of $30 per share for WBD, encompassing CNN and its cable networks, has been consistently rejected by the WBD board in favor of a competing bid from Netflix. Netflix's offer of $27.75 per share focuses specifically on Warner Bros. and HBO, excluding the cable assets. However, WBD and Netflix argue that a planned spin-off of these cable assets would ultimately increase their value, resulting in a higher overall valuation for the company compared to Paramount's proposal.

The WBD board has voiced several reservations regarding Paramount's offer. One key concern revolves around the financing structure, which relies heavily on backing from the royal families of Saudi Arabia, Qatar, and Abu Dhabi. The board has questioned why Larry Ellison, a titan of the tech industry with a substantial personal fortune, requires such extensive external support to finance the deal.

To counter these criticisms, Paramount has taken several steps to bolster its position. Larry Ellison's personal guarantee of $40.4 billion represents a significant commitment, putting a considerable portion of his net worth on the line. Furthermore, the Ellison family trust has agreed not to revoke its holdings, a move that could have jeopardized the deal's financing. To further instill confidence, Paramount has disclosed records confirming the trust's ownership of 1.16 billion Oracle shares.

In addition to these financial assurances, Paramount has increased its breakup fee to $5.8 billion, matching the amount pledged by Netflix. This provision ensures that WBD shareholders would receive substantial compensation if the deal were to fall through. Despite these efforts, the core valuation of Paramount's offer remains unchanged.

The WBD board is now tasked with reevaluating Paramount's revised offer. While the new guarantees address some of the board's previous concerns, it remains uncertain whether they will be sufficient to sway their decision. The ultimate outcome hinges not only on the board's assessment but also on the perspective of WBD shareholders, who have the power to reject the board's recommendation given the hostile nature of Paramount's pursuit.

The market reaction to this escalating saga has been noteworthy. Following the announcement, WBD shares experienced a 4% surge, while Paramount shares rose by 3%. Netflix's stock remained stable, suggesting that the market views the potential acquisition as a more significant event for WBD and Paramount.

The situation remains dynamic, and the coming weeks will be critical in determining the future ownership of Warner Bros. Discovery. Paramount's aggressive tactics, backed by Ellison's financial commitment, demonstrate its unwavering determination to acquire WBD. However, the WBD board's skepticism and the competing offer from Netflix present formidable obstacles that Paramount must overcome to achieve its strategic objectives. The outcome of this high-stakes corporate drama will undoubtedly have significant ramifications for the media landscape.