Pentwater Capital Management, the seventh largest shareholder in Warner Bros Discovery, has sent a letter to the media giant’s board of directors accusing it of not fully engaging with Paramount’s revised $108.4 billion bid for the entire company.
In an interview with CNBC, Pentwater’s CEO Matt Halbower said David Ellison’s eighth offer is “economically superior” to Netflix’s $83 billion deal for Warner’s streaming and studio assets.
“It is superior in terms of regulatory risk, and I understand that the board has some legitimate issues with it, but those legitimate issues don’t warrant giving Paramount the stiff arm and refusing to actually have a conversation. That’s not how I want my board of directors to act,” Halbower told the outlet. “I want them to be willing to engage in a conversation with a party that has the ability to close a transaction and has indicated publicly that it’s $30 offer is not best and final, which screams to me that it is willing to pay even more than 30.”
A spokesperson for Pentwater did not immediately return TheWrap’s request for comment.
In a separate appearance on CNBC on Wednesday, WBD board chairman Samuel Di Piazza Jr. acknowledged that Oracle co-founder Larry Ellison “stepped up to the table” with a personal guarantee.
But he pointed to other issues in Paramount’s latest bid, such as $2.8 billion in costs that would be incurred by abandoning its $83 billion deal with Netflix, as well as other operating and debt refinancing restrictions in the Paramount offer that would damage WBD’s business. The board also said that the bid’s $55 billion in debt financing heightens the risk of the bid’s failure to close.
Di Piazza Jr. also questioned whether Paramount would look to back out of the deal if market conditions change over the next 18 months, noting the entire media sector is “under stress,” and pointed out that that the Ellisons ultimately didn’t raise the price tag in their latest bid.
“In our perspective, Netflix continues to be the superior offer, a clear path to closing and we believe protection for our shareholders,” Di Piazza Jr. concluded. “A deal is great. Closing is better.”
Halbower disagreed and called the board’s argument is “specious,” pointing out that Netflix would put $59 billion in debt on the deal.
“The Ellison family are AAA rated, and they have a higher credit rating than Netflix,” he continued. “The idea that Bank of America and Citibank are going to fall down on a contractual obligation to finance the debt when you’re going to have over $41 billion of equity that’s going to be put up by the Ellison family, as well as their partners in Middle East, which really have net worths even greater than the Ellison family is wrong. That’s just not going to happen. That’s not a legitimate risk factor to turn down this deal, especially when, by the way, they could have said this last time, and instead, it looks like they’re digging into their pocket to come up with something brand new, moving the goal post.”
Di Piazza Jr. pushed back against criticism that WBD was just shifting the goal posts and looking for any reason to reject Paramount’s latest offer.
“That’s unfortunate, because that’s not the case. We would be very open to do a transaction with Paramount,” he said. “That’s nothing further from the truth. We have talked to them now since September. We’ve given them lots of input on what they needed to do to change. At the last minute, they went to $30. And then it was after the last minute that they guaranteed it.”
Shareholders are expected to vote on the Netflix-Warner Bros. deal in late spring or early summer.
In the meantime, Paramount is giving WBD shareholders until Jan. 21 at 5 p.m. ET to tender their shares, though that deadline can be extended. As of Dec. 19, less than 400,000 shares had been validly tendered and not withdrawn, though shareholders can do so at anytime before the deadline.
Without board approval, Paramount would need at least 90% of WBD’s outstanding shares for its tender offer to be successful. WBD has approximately 2.48 billion outstanding shares.
“We have the ability to vote for who represents us on the board of directors. We have the ability to vote for if we want the Netflix transaction or not,” Halbower added. “We are a small voice, but I think it’s important for the board to at least hear our voice as the seventh largest shareholder, because I think what they’re doing is wrong. If Paramount goes away, then it is a lost opportunity. Now, hopefully they won’t. I actually don’t think they will. And I just want to make sure that the board, if Paramount comes back, doesn’t do something that would truly be destructive to shareholder value.”
