It would cost Warner Bros US$4.7b to terminate its agreement with Netflix in favour of a Paramount deal, the board said in the letter. That includes a US$2.8b breakup fee that Warner Bros would owe to Netflix, a US$1.5b fee for failing to complete a debt exchange and additional borrowing expenses of about US$350m, according to the letter. That would leave it with only US$1.1b of the US$5.8b termination fee offered by Paramount in the event the deal fell apart.
Warner Bros shares fell less than 1% in early trading in New York to US$28.29. Paramount shares were little changed.
Paramount, which is controlled by Oracle chairman Larry Ellison and his son David, has been trying for months to acquire Warner Bros, the parent of HBO and its namesake film and TV studios. A series of offers from Paramount prompted the company to put itself up for sale in October. Warner Bros announced a deal to sell its studios and streaming business to Netflix on December 5 for cash and stock worth US$27.75 a share. Warner Bros plans to spin off its cable-TV networks to shareholders before the sale to Netflix closes.
After Paramount lost, it took its offer directly to shareholders, offering to tender their shares for US$30 each in cash.
Paramount has argued that its offer for the entire company is superior to that of Netflix, and more likely to win regulatory approval. Warner Bros has said it thinks both deals have an equal shot at clearing regulatory hurdles.
Netflix said on Wednesday that it has already submitted its regulatory filing and is engaging with antitrust authorities, including the US Department of Justice and the European Commission.
“Netflix remains committed to working closely with WBD, regulators, and all stakeholders to ensure a smooth and successful transaction,” the company said in a statement.
Much of the debate has focused on the value of Warner Bros cable networks like TNT and CNN, which have been losing viewers and advertisers as consumers shift to streaming. Paramount believes the networks are worth about US$1 a share, while analysts say it may be worth more than that. The lower you value the cable assets, the greater advantage Paramount’s bid has. If shareholders believe the cable operations are more highly valued, then Netflix’s bid, which assumes they will be spun off, means investors get a bigger overall sum of money.
In its letter, the Warner Bros board said investors will receive more value from the cable-TV spinoff and Netflix shares under the current deal than from a Paramount deal.
“Your board negotiated a merger with Netflix that maximises value while mitigating downside risks, and we unanimously believe the Netflix merger is in your best interest,” the letter reads.
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