Warner Bros. Discovery rejects Paramount’s bid again, calling it a “leveraged buyout”

The bidding war between Warner Bros. Discovery (WBD) and its vast library of hit TV shows and movies, including “Harry Potter”, “Game of Thrones” and DC Comics titles, drags on.

The studio announced Wednesday that its board of directors unanimously rejected Paramount Skydance’s revised $108.4 billion offer, calling it a “leveraged buyout” that would leave the company with $87 billion in debt.

In a letter to shareholders, WBD said Paramount would need to raise an “unusual amount” of debt, increasing the risk that the deal would fall through, and urged shareholders to reject the proposal and instead vote in favor of its previous $82.7 billion deal with Netflix for film and TV studio assets.

Paramount had been rumored to be pursuing an acquisition of WBD even before the Netflix partnership was announced, but in early December, after Warner Bros.’ acquisition, it made an all-cash, $30-per-share offer directly to WBD shareholders. The board of directors decided to sell to Netflix. But WBD rejected Paramount’s offer, saying it was “illusory” and that Paramount didn’t have the funds to back up its claims, and instead recommended a cash-and-stock deal for Netflix.

Paramount then returned with a $40 billion guarantee from CEO David Ellison’s father, billionaire Oracle co-founder Larry Ellison, and announced it would raise $54 billion in debt to finance the deal.

WBD doesn’t seem convinced. “[Paramount] A company with a market capitalization of $14 billion would need to raise $94.65 billion in debt and equity, nearly seven times its market capitalization, to attempt an acquisition. […] “This aggressive transaction structure poses significantly greater risks to WBD and its shareholders when compared to the traditional structure of the Netflix merger,” WBD said in a statement.

Warner Bros. also argued that increasing debt by this amount would further deteriorate Paramount’s current “junk” credit rating, casting doubt on Paramount’s ability to perform successfully if the deal went through.

Warner Bros. is particularly concerned about Paramount’s negative free cash flow, which would be exacerbated by the deal. “In contrast, Netflix is ​​a company with a market capitalization of approximately $400 billion, an investment-grade balance sheet, an A/A3 credit rating, and estimated free cash flow of more than $12 billion in 2026,” WBD writes.

Netflix welcomed WBD’s decision, saying the combined companies would “bring together highly complementary strengths and a shared passion for storytelling.”