Paramount accuses Warner Bros. board of deception in Netflix merger 

WILMINGTON, Del. (CN) — Paramount sued the Warner Bros. Discovery board of directors on Monday, arguing the studio giant breached its fiduciary duty in striking a multibillion dollar deal with Netflix.

In the lawsuit filed in the Court of Chancery of the state of Delaware, Paramount accuses the board of withholding key valuation information from stockholders before agreeing to sell WarnerMedia’s film and television division to Netflix for $72 billion in cash and stock on Dec. 5. Paramount claims it offered an all-cash $30-per-share offer, totaling $77.9 billion.

The board rejected six of Paramount’s offers before it made a hostile offer that directly appealed to stockholders. Paramount seeks a court order requiring the board to disclose the method by which it determined that Netflix offered a superior deal.

“WBD’s stockholders have the opportunity right now to choose between the Netflix transaction and the Paramount offer; and they are entitled to do so with the benefit of all material facts, not simply relying on the board’s say so that it adequately and accurately weighed all relevant factors to determine that Netflix’s offer is superior,” Paramount writes in the complaint.

Unlike Paramount’s deal, the Netflix deal hinges on Warner Bro’s. Discovery following through on its planned split into Streaming & Studios — which will include WarnerMedia’s film and television libraries and the streaming service HBO Max, and Global Networks, which will oversee the company’s linear television assets, such as CNN, TNT Sports, and Discovery.

Netflix is only purchasing Streaming & Studios, while Paramount offered to buy the entire company.

“The board’s stated justification for valuing the Netflix offer as preferred to Paramount’s offer was primarily based on the implied value of Global Networks to the stockholders — notwithstanding that linear television has been in decline for years,” Paramount says in its complaint. “The board has never disclosed the valuation it used for the Global Networks business when it made that initial decision, nor any subsequent valuations.”

Paramount also argues that Warner Bros. Discovery is less likely to face antitrust hurdles if it agrees on a deal than the potential Netflix merger, which would combine the streaming giant with HBO Max. Paramount owns a substantially smaller portfolio, including CBS, BET, MTV and Nickelodeon.

The board wrote a letter to stockholders on Jan. 7, reiterating its support for the Netflix merger. The board claims the Paramount offer entails greater financial risk, given Paramount’s $14 billion market capitalization compared to Netflix’s $400 billion. Warner Bros. Discovery would have to pay Netflix a $2.8 billion termination fee for abandoning the merger agreement.

“The board unanimously determined that the Paramount’s latest offer remains inferior to our merger agreement with Netflix across multiple key areas,” Chair of the Warner Bros. Discovery Board of Directors Samuel Di Piazza, Jr. said in a Jan. 7 press release. “Paramount’s offer continues to provide insufficient value, including terms such as an extraordinary amount of debt financing that create risks to close and lack of protections for our shareholders if a transaction is not completed. Our binding agreement with Netflix will offer superior value at greater levels of certainty, without the significant risks and costs Paramount’s offer would impose on our shareholders.”

Attorneys representing Paramount declined to comment. Warner Bros. Discovery did not immediately respond to a request for comment.

“I believe in our vision for how we can bring these great companies together and deliver for consumers, the creative community and of course, for you,” Paramount chairman and CEO David Ellison wrote in a Jan. 12 letter to Warner Bros. Discovery shareholders. “Paramount is committed, my family is committed, and hopefully this helps answer the question of what comes next.”