Paramount's New Offer for Warner Bros. Is Not Sufficient, Major Investor Says

Paramount Skydance's latest offer to buy Warner Bros. Discovery still is not good enough for prominent shareholder Harris Oakmark, the investor told Reuters on Friday.

Warner Bros.' fifth largest shareholder, owning 96 million shares or about 4 percent of shares as of the end of September, said it would hold out for more from the Ellison family-controlled Paramount.

"The changes in Paramount's new offer were necessary, but not sufficient," Harris Oakmark portfolio manager and Director of US Research Alex Fitch said in an email to Reuters. "We see the two deals as a toss-up, and there is a cost to changing paths. If Paramount is serious about winning, they're going to need to provide a greater incentive."

Paramount on Monday amended its $108.4 billion hostile bid for the storied Hollywood studio to bolster its financing. Oracle co-founder Larry Ellison, whose son David owns Paramount, is now personally guaranteeing $40.4 billion of the bid to secure Warner Bros., which owns HBO Max and controls the Harry Potter, Lord of the Rings and Superman franchises.

Questions about the financing, much of which was held in a revocable trust, had some Warner Bros. investors unsure whether they would accept the offer. Paramount also increased the fee it will pay to $5.8 billion from $5 billion if regulators don't approve the deal, to match a competing offer from Netflix , although it didn't raise its $30-a-share bid.

'Top Shelf Media Assets'

Warner Bros. investors now have until January 21, extended from January 8, to accept or reject the so-called tender offer.

The board of Warner Bros. unanimously recommended on Wednesday that shareholders reject Paramount's earlier bid in favor of Netflix's offer, saying the financing didn't provide a "full backstop." Even though Netflix's cash offer of $23.25 a share is lower, the board said its bid was superior because the financing was more secure and it includes $4.50 in shares of Netflix common stock as well as whatever Warner Bros. can get when it spins out Discovery Global as part of the deal.

The bidding war speaks to the quality of Warner Bros. assets, said Yussef Gheriani, chief investment officer of Chicago investment firm IHT Wealth Management, which owns 16,000 shares of Warner Bros., 6,500 shares of Netflix and 60,000 of Paramount.

"It's really rare to get an opportunity to add top shelf media assets to your portfolio," he said, adding that he'll likely follow the board's advice on the sale. "They know the business inside out and have a better grasp of the nuances associated with the deal than we do."

Investor Thomas Poehling, who owns 484,000 shares of Warner Bros. and 639,000 of Paramount, said he'll likely take the revised offer if Netflix doesn't counter because Paramount has a better chance of winning approval from regulators.

Ellison's guarantee "adds a lot of stability to that offer and that removes a lot of the financing uncertainty," he said.

Gheriani and Poehling aren't the only investors to hold shares in the rival movie studios. Vanguard, State Street and BlackRock are Warner Bros.' three largest shareholders, controlling at least 22 percent of the company between them.

All three are also among the top ten investors in Paramount and Netflix. None commented for this article.

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