Warner Bros investors torn on Paramount Skydance bid

Some investors criticise board’s rejection of Paramount’s offer, citing better regulatory chances

Some of Warner Bros Discovery’s biggest investors are split on Paramount Skydance’s sweetened offer for the storied movie studio owner, giving the smaller media company a fighting chance at winning over shareholders.

Investors have until January 21 to accept Paramount’s latest $108.4bn proposal, paying them $30 a share, an offer the Warner Bros board says is inferior to its agreement to sell to Netflix.

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Though the creator of, Stranger Things, is offering just $27.75 a share or $82.7bn, Warner Bros says the financing is more solid and that Paramount’s deal would leave the merged company with too much debt.

Alex Fitch, partner and portfolio manager for Harris Oakmark, which held about 96 million shares, or 4 percent of Warner Bros, as of September 30, agrees with the board.

“The value still isn’t clearly superior to what has already been agreed to with Netflix. A tie goes to the incumbent,” Fitch said in an email to Reuters.

Fee and debt at risk

Though Paramount’s offer, on its face, is higher, Warner Bros said it does not cover the $2.8bn breakup fee it would have to pay Netflix, $1.5bn in fees it would owe its bankers and another $350m in financing costs.

A smaller investor, Yussef Gheriani, chief investment officer of IHT Wealth Management, which has about 16,000 Warner Bros shares, said in an email that the board’s decision to reject Paramount’s offer makes sense as the increase in total value may not be worth breakup fees and borrowing costs. The deal would leave the combined company with $87bn in debt, Warner Bros said.

But Matthew Halbower of Pentwater Capital Management, which said it owns more than 50 million shares, feels differently. He told Warner Bros Chairman Samuel DiPiazza in a letter sent on Wednesday that the board “breached its fiduciary duty” to shareholders by rejecting Paramount’s offer out of hand, saying it was a better deal and had a better chance of clearing regulatory scrutiny.

Warner Bros’s board “is choosing not to inquire about what improvements Paramount is willing to make to its offer,” he said in the letter, which was reviewed by Reuters. If Paramount does eventually further improve its $30-per-share offer, the Warner Bros board should at least talk with the suitor, or his firm will not support any Warner Bros directors at their next election, Halbower wrote.

Mario Gabelli, whose Gabelli Funds holds about 5.7 million shares of Warner Bros, according to LSEG data, said he is “likely” to sell his shares to Paramount. He said its all-cash offer is more straightforward and would have a faster path to regulatory approval.

“At the moment, Paramount has a superior bid,” Gabelli told CNBC. “Netflix has to simplify their bid.”

Harris Oakmark, which is Warner Bros’ fifth-largest shareholder, remains open to changing its position. “If they [Paramount] come back to the table with a clearly superior offer, we have full confidence that the WBD board will engage,” Fitch said.

It is not often that a marquee media asset like Warner Bros, which owns HBO Max, comes to market, sparking a bidding war. Its extensive content library includes Harry Potter and the DC Comics universe. Its HBO Max streaming service recently acquired the US and Australian distribution rights to the runaway hit, Canadian hockey romance, Heated Rivalry.

Warner Bros’s top three shareholders are the large passive fund managers Vanguard, State Street and BlackRock, together controlling some 22 percent. All three are also among the top 10 investors in Paramount and Netflix.

On Wall Street, Warner Bros stock is down 0.7 percent while Paramount stock is up 0.7 percent in midday trading. Netflix is trending downwards at 0.2 percent below the market open.