In a significant escalation of its attempt to acquire Warner Bros. Discovery (WBD), Paramount has initiated legal proceedings targeting WBD's management and board. On Monday, Paramount’s Chief Executive Officer, David Ellison, announced that the company filed a lawsuit in Delaware Chancery Court, the venue traditionally dedicated to resolving corporate disputes among shareholders. This action underscores a shift towards a more hostile acquisition approach after months of unsuccessful negotiations to purchase the entire Warner Bros. Discovery entity.
Ellison expressed strong dissatisfaction with WBD, specifically criticizing what he described as a "lack of transparency" related to WBD's decision to prioritize Netflix's bid for its Warner Bros. and HBO divisions. While a spokesperson for WBD did not immediately offer a comment, the legal step had been anticipated by financial analysts observing the prolonged takeover attempt.
Paramount’s CEO has been pursuing a full acquisition of WBD for several months, but these efforts have consistently been rejected. Following the rebuff of direct talks, Paramount is now adopting a two-pronged strategy: offering to buy shares of WBD at $30 apiece, representing an all-cash proposal potentially above the current valuation tied to Netflix's offer, and threatening a proxy contest aimed at wresting control of the WBD board.
Ellison stated that the proxy fight would involve nominating a slate of directors aligned with Paramount’s interests. He asserted these proposed board members would exercise certain rights under WBD’s existing Netflix agreement in order to engage with Paramount’s offer, thereby facilitating a transaction favorable to Paramount shareholders. This approach serves as a fallback mechanism should a sufficient number of WBD shareholders decide against tendering their shares directly to Paramount in the near term.
As of now, Warner Bros. Discovery has not announced the schedule for its annual shareholder meeting; however, the previous meeting occurred in June of the prior year. The timing of this meeting will be critical in determining the next steps for shareholders and potential takeover attempts.
Separately, WBD has affirmed its commitment to the previously signed agreement to sell Warner Bros. and HBO assets to Netflix, with a per-share consideration of $27.75. This amount comprises $23.25 in cash payment plus the remainder in Netflix stock. Netflix has publicly indicated that it is actively negotiating with regulatory bodies in both the United States and Europe to secure the necessary approvals to complete this transaction.
The ongoing hostile bid from Paramount introduces considerable uncertainty into the future of WBD’s media empire. Ellison commented that WBD’s rationale for favoring the Netflix transaction over Paramount's $30 all-cash proposal lacks coherence, stating the "decision-making just doesn’t add up," especially considering Paramount’s offer exceeds Netflix’s per-share value.
In response, Warner Bros. Discovery’s board has raised several objections regarding Paramount’s bid. These concerns include the significant debt financing Paramount intends to use, conditions attached to the offer that WBD finds onerous, and other transaction-specific issues. WBD’s directors have also pointed to the expected value of the company’s cable assets, which are excluded from the Netflix deal. Such channels include CNN, which WBD plans to separate and establish as a newly formed, publicly traded entity named Discovery Global later this summer. Paramount, however, has contested the supposed equity value of these cable properties.
The Delaware lawsuit is designed to compel WBD to provide more detailed information regarding its valuation process. Ellison argued that this transparency is essential so that shareholders can make informed decisions about whether to tender their shares to Paramount.
The response among major shareholders has been divided, with some viewing Paramount’s offer as superior while others support the Netflix arrangement. Additionally, external political factors may influence the outcome. Former President Donald Trump has indicated he will personally review the proposed merger and related deals, raising questions about how political considerations might affect regulatory approval. Over the weekend, he rekindled opposition to Netflix by sharing a month-old opinion article from a conservative news outlet that criticized what it termed a "woke media monopoly."
Meanwhile, Netflix remains optimistic, expressing confidence in closing the acquisition within the next twelve to eighteen months, pending successful regulatory clearances.