RPT-BREAKINGVIEWS-Warner Bros defenses keep getting flimsier

By Jennifer Saba

NEW YORK, Jan 7 (Reuters Breakingviews) - Warner Bros Discovery’s WBD.O excuses are getting thin. The entertainment empire's board rejected a revised $108 billion takeover entreaty from Paramount PSKY.O and stuck with its agreed partial sale to Netflix NFLX.O. After getting practically everything it asked for and fresh evidence suggesting that the rival offer is better, its recalcitrant position has become almost impossible to defend.

In the latest dramatic turn, the owner of streaming service HBO and cable network CNN, among others, urged its shareholders again to reject Paramount's hostile bid. The rationale this time: the transaction would be the largest leveraged buyout in history, thereby creating uncertainty about completion. Boss David Zaslav and his colleagues trotted out this latest rejoinder after earlier citing valuation, insufficient cash and the lack of a guarantee from billionaire Larry Ellison that he would backstop the financing for the company led by his son, David.

Paramount has acquiesced at every turn. It sweetened its bid several times, offered all cash after being guided by WBD advisers that "cash is king," and the elder Ellison personally certified his funding. Meanwhile, Bank of America BAC.N, Citigroup C.N and Apollo Global Management APO.N are also lending Paramount $54 billion, which should be enough reassurance.

Instead, WBD is clinging to the idea that Netflix's proposal using a mix of cash and stock, at $27.75 a share for the studio and streaming, is somehow superior to Paramount's $30 in cash for everything. Team Zaslav reckons the cable networks will be worth more than $2.25 a share once they trade independently.

The logic starts to unravel here, too. Comcast spun off its TV networks and digital assets this week, providing a handy comparison. Versant Media, as the entity is known, has been valued at about 4 times expected 2026 EBITDA of $1.9 billion, according to the company's forecast. Apply the same multiple to WBD's comparable business, per earnings estimates gathered by Visible Alpha, and it's worth less than $2 a share, assuming $20 billion of net debt. Combined with Netflix’s more complicated offer, it's 25 cents short of Paramount's.

Moreover, WBD's argument about the amount of borrowing that would result when combined with Paramount shouldn't concern its shareholders. They can just take the cash and run. WBD itself also was built on leverage, so it's a little rich for Zaslav to be hiding behind the issue as a takeover defense. At this stage, it's Netflix that will have to come up with a better excuse for not offering more.

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CONTEXT NEWS

Warner Bros Discovery’s board of directors on January 7 rejected Paramount’s $108 billion hostile bid, comparing the deal to a risky leveraged buyout.

Paramount, which is offering $30 a share in cash for all of WBD, initiated a tender offer on December 8 to buy the shares and thwart the company's agreed deal to sell its Hollywood studio and streaming service HBO to Netflix, but not its portfolio of cable networks, for $27.75 in cash and stock.