Warner rejects Paramount’s hostile bid, saying Netflix deal still superior

Calling the Paramount offer “illusory" in a letter to shareholders, Warner again raised concerns about the credibility of the equity being offered by Paramount and questioned the structure of the Ellison family’s commitment to funding the deal.

Paramount CEO David Ellison and his father Larry, the billionaire co-founder of Oracle, are majority shareholders in Paramount, along with RedBird Capital.

Netflix earlier this month agreed to pay $72 billion, or $27.75 a share, in cash and stock for Warner’s studio and HBO Max streaming business after the entertainment company splits itself in two.

Paramount then went hostile with its $77.9 billion proposal to acquire all of Warner. Paramount has been arguing that its offer is a better deal for shareholders and more likely to pass regulatory muster.

The Wall Street Journal reported Tuesday that a rejection from Warner was imminent.

In its letter, Warner said the Ellison family is using a revocable trust to fund the deal and that documents provided by Paramount about the commitment “contain gaps, loopholes and limitations that put you, our shareholders, and our company at risk."

The Netflix merger, on the other hand, is fully backed by a public company with a market cap of more than $400 billion and with an investment-grade balance sheet, Warner said.

“The terms of the Netflix merger are superior," Warner said in its letter. “The [Paramount] offer provides inadequate value and imposes numerous, significant risks and costs on [Warner]."

Paramount’s hostile bid is at $30 a share, though the company has also told Warner this offer isn’t its “best and final" proposal, a signal it could increase the bid.

Warner shares closed Tuesday at $28.90.

Paramount’s bid initially included capital from three Gulf sovereign-wealth funds, as well as Jared Kushner’s Affinity Partners. As of Tuesday, Affinity was no longer involved in the deal.

“The dynamics ​of the investment have changed significantly ​since we initially became ​involved ​in October," an Affinity spokesman said, adding the firm continues to see “strong strategic rationale for Paramount’s offer."

Paramount’s tender offer is set to expire on Jan. 8 but can be extended.

The company has said repeatedly that it didn’t hear back from Warner so that it could improve its offer.

Warner said Wednesday that its board repeatedly engaged with all parties, holding dozens of calls and meetings with the principals and the Ellisons. The company said it raised the concerns about the funding to Paramount and the Ellisons and gave them several opportunities to change the offer.

Warner also said Wednesday that its board doesn’t believe there is a “material difference in regulatory risk" between the Paramount offer and the Netflix deal.

Write to Lauren Thomas at lauren.thomas@wsj.com and Joe Flint at Joe.Flint@wsj.com