Proxy advisory firm Glass Lewis is joining Institutional Shareholder Services in recommending that shareholders vote against Warner Bros. Discovery CEO David Zaslav’s $887 million golden parachute compensation in connection with the Paramount merger, specifically taking aim at a tax reimbursement included in the package.
“Based on the implied premium between the merger consideration and the price of the Company’s stock before the first reports regarding a potential merger, payments represent approximately 2.9% of the equity premium of the merger, which is not excessive,” Glass Lewis wrote in its analysis. “However, the decision to implement excise tax gross-up provisions for Mr. Zaslav warrants severe concern, particularly when also considering the substantial quantum of payments involved. In light of these factors, shareholders may reasonably withhold support from the proposal.”
Under the terms of the package, Zaslav will receive $34,219,178 in cash, $517,204,781 in equity, $44,195 in “perquisites and benefits.” The cash component includes $6 million in salary severance and $28.2 million in bonus severance. Meanwhile, the equity component includes $443,131,800 in options, 60,867,415 in restricted stock units and 13,205,566 in performance-based restricted stock units.
Additionally, Zaslav is eligible to receive a tax reimbursement, though the actual amount will “significantly decline with the passage of time” under IRS rules depending on when the deal closes. Had it closed on March 11, he would’ve been eligible for a $335.4 million tax reimbursement, bringing his estimated total compensation package to $887 million.
Based on current estimates from WBD’s outside tax advisers, if the Paramount-WBD closing were to occur in 2027, no tax reimbursement payment would be expected to be made to Zaslav.
“While such rationale merits careful consideration from shareholders, this expansion nonetheless represents a considerable and unnecessary cost to shareholders,” Glass Lewis added. “Moreover, the decision to implement gross-up provisions on the eve of a transaction deprives shareholders of the ability to consider and weigh such provisions fully and appropriately. As such the decision to introduce gross-ups merits severe concern.”
Though Glass Lewis is urging shareholders to reject Zaslav’s pay, the firm is recommending that shareholders approve the $110 billion Paramount merger.
The firm noted that the sale process “appears to have been sufficiently broad and disciplined to support the board’s decision to change course once it determined that doing so was warranted” and that Paramount’s $31 per share offer plus a 25 cent per share ticking fee if closing extends beyond Sept. 30 provides shareholders with a “cleaner finale” than the $83 billion Netflix deal for WBD’s studio and streaming assets.
“From a valuation standpoint, the Merger Consideration offers WBD shareholders immediate and certain cash value at a level that appears favorable relative to the Company’s unaffected trading history, the financial advisors’ updated valuation analyses, and the range of potential financial outcomes reflected in the prior Netflix transaction,” the firm said. “Although the amended Netflix proposal may have offered greater theoretical upside if Discovery Global on a post-spinoff basis ultimately proved to be worth more than the value implied by PSKY’s final bid, that outcome would have depended on investors ascribing a relatively robust standalone value to a business whose prospective worth appeared meaningfully uncertain.”
However, it warned that the Paramount deal is not without “meaningful closing risk”
“The persistently wide merger arbitrage spread and the continuing antitrust scrutiny indicate that the market does not view completion as assured, notwithstanding the expiration of the HSR waiting period and the substantial reverse termination fee,” the firm continued. “Even so, in light of the certainty of the Merger Consideration, the strength of the final price relative to the disclosed valuation references, and the disciplined process through which the board arrived at its decision, we believe the overall balance of factors here weighs in favor of shareholder support for the PSKY merger.”
Glass Lewis’ recommendation comes after another influential proxy advisory firm, Insitutional Shareholder Services, called Zaslav’s golden parachute payout “problematic” and “inconsistent with common market practice.”
ISS also said the Paramount merger is the result of a “competitive sales process” that “provides shareholders comfort that the proposed deal is the best available.” It also said the deal is a “meaningful premium to the unaffected share price” and that there’s a “potential downside risk of non-approval.”
The Paramount-Warner Bros. merger is expected to close by the third quarter, subject to regulatory and shareholder approval. A shareholder vote is slated for April 23. The advisory vote on executive pay is non-binding.
In the event that the deal does not close at all due to regulatory matters, Paramount will pay WBD a $7 billion termination fee.
