Warner Bros. Discovery Inc. (WBD) said Tuesday it will hold a special shareholder meeting on March 20 to vote on its proposed merger with Netflix Inc., even as it opens a seven-day window to engage with rival suitor Paramount Skydance Corp. (PSKY)
“We continue to believe the Netflix merger is in the best interests of WBD shareholders due to the tremendous value it provides, our clear path to achieve regulatory approval, and the transaction’s protections for shareholders against downside risk,” said Samuel A. Di Piazza, Jr., chairman of the WBD Board of Directors.
“With Netflix, we will create a brighter future for the entertainment industry — providing consumers with more choice, creating and protecting jobs, and expanding U.S. production capacity while increasing investments to drive the long-term growth of our industry,” Piazza said in a statement released Tuesday.
Warner Bros. said it mailed its definitive proxy statement to shareholders in connection with the vote, and disclosed that Netflix has granted it a limited waiver under the merger agreement allowing WBD to hold discussions with PSKY through Feb. 23.
The purpose of the talks, WBD said, is to seek clarity for shareholders and allow PSKY to submit what it describes as its best and final offer. Netflix retains its matching rights under the existing merger agreement.
At the same time, the WBD board continues to unanimously recommend that shareholders approve the Netflix deal and reject Paramount’s competing offer, citing reasons outlined in an amended Schedule 14D-9 filed Feb. 17 with the Securities and Exchange Commission.
According to WBD, after receiving PSKY’s latest amended offer, a senior Paramount representative told a WBD board member that if discussions were authorized, PSKY would agree to pay $31 per share and that the figure was not its “best and final” proposal.
That price and several other matters referenced in PSKY’s Feb. 10 letter were not reflected in the most recent merger agreement draft proposed by Paramount, said WBD.
Additionally, WBD said it sent PSKY board members a letter today outlining key unresolved issues and included draft transaction agreements for PSKY to confirm the terms of its offer.
“Throughout the entire process, our sole focus has been on maximizing value and certainty for WBD shareholders,” said David Zaslav, WBD president and CEO. “Every step of the way, we have provided PSKY with clear direction on the deficiencies in their offers and opportunities to address them.
“We are engaging with PSKY now to determine whether they can deliver an actionable, binding proposal that provides superior value and certainty for WBD shareholders through their best and final offer,” he said in a statement also released Tuesday.
Those thoughts are reiterated in a Feb. 17 letter sent to the PSKY board in which WBD said it remains “fully committed to delivering a superior transaction” and emphasized that its agreed deal with Netflix “offers superior value for our shareholders, allows us to achieve our strategic goal to separate WBD’s businesses, offers a high degree of certainty with minimal risk to the businesses in the interim, and has essentially no financing risk.”
The company noted in its letter that PSKY amended its tender offer on Feb. 10 but said the revised proposal “still contains many of the unfavorable terms and conditions” that were included in earlier drafts “twice unanimously rejected by our board.”
While PSKY’s Feb. 10 letter signaled a willingness to address some concerns, WBD said those changes were not reflected in the proposed merger agreement.
“We are writing to inform you that Netflix has agreed to provide WBD a waiver of certain terms of the Netflix merger agreement to permit us, through Feb. 23, to engage with PSKY to clarify your proposal, which we understand will include a WBD per share price higher than $31,” states the letter, which is signed by Piazza and Zaslav on behalf of the WBD board.
The WBD board also underscored that it “has not determined that PSKY’s proposal is reasonably likely to result in a transaction that is superior to the Netflix merger,” and reaffirmed that it has scheduled the March 20 shareholder vote on the Netflix agreement.
WBD also sent PSKY revised transaction agreements addressing issues such as refinancing expenses, bridge financing flexibility, the definition of material adverse effect, equity funding certainty, and interim operating covenants.
Among the proposed changes, WBD said PSKY would bear certain refinancing costs, provide stronger assurances around debt and equity financing, and align several terms more closely with the Netflix merger agreement.
The temporary engagement period for WBD and PSKY to renegotiate sits well with activist investor Ancora Holdings Group LLC, the Cleveland-based firm that holds a more than $200 million stake in WBD, and recently threatened a proxy fight over its proposed deal with Netflix.
Ancora argues that the Netflix deal has higher regulatory hurdles and offers lower value compared to the PSKY proposal, which it says provides better, more certain value.
“I’m confident that we could obviously inflict a lot of damage on the Warner Brothers’ board if that’s what we’re forced to do,” Jim Chadwick, president of Ancora subsidiary Ancora Alternatives LLC, told CNBC last week.