Paramount files lawsuit in pursuit of Warner Bros. Discovery and threatens proxy fight

By Brian Stelter, Liam Reilly, CNN

(CNN) — Paramount is taking its pursuit of CNN’s parent company Warner Bros. Discovery to court.

On Monday Paramount CEO David Ellison announced a lawsuit in Delaware Chancery Court, where shareholders typically bring corporate disputes, as it attempts a hostile takeover of the iconic entertainment company.

Ellison criticized Warner Bros. Discovery, also known as WBD, for a “lack of transparency” around its decision to favor Netflix’s bid for Warner Bros. and HBO.

Ellison has been trying for months to buy all of WBD, but his entreaties have been rebuffed.

WBD has been moving forward with its signed agreement to sell its Warner Bros. and HBO assets to Netflix for $27.75 per share, with $23.25 in cash and the rest in Netflix stock.

So Ellison is trying to gain control of WBD by offering to buy up shares for $30 each, and he is also threatening a proxy fight, vowing to nominate a Paramount-friendly slate of board members to take over the WBD board.

Those board members, he said, would “exercise WBD’s right under the Netflix agreement to engage on Paramount’s offer and enter into a transaction with Paramount.”

The proxy fight is a backup plan of sorts, in case a sufficient number of WBD shareholders don’t agree to sell their shares to Paramount in the coming weeks.

Warner’s annual shareholder meeting has yet to be scheduled. Last year it took place in June.

A WBD spokesperson responded with a statement that dismissed Paramount’s public campaign.

“Despite six weeks and just as many press releases from Paramount Skydance, it has yet to raise the price or address the numerous and obvious deficiencies of its offer,” WBD said. “Instead, Paramount Skydance is seeking to distract with a meritless lawsuit and attacks on a board that has delivered an unprecedented amount of shareholder value.”

“In spite of its multiple opportunities, Paramount Skydance continues to propose a transaction that our board unanimously concluded is not superior to the merger agreement with Netflix,” WBD added.

Netflix said last week that it is in talks with US and EU regulators to receive the necessary approvals for the deal.

But Paramount’s hostile takeover bid means that a giant question mark looms over the entire media empire.

Ellison said on Monday that WBD’s decision-making “just doesn’t add up – much like the math on how WBD continues to favor taking less than our $30 per share all-cash offer for its shareholders.”

WBD has raised a variety of concerns about Paramount’s debt financing, onerous conditions connected to the bid and other matters.

The WBD board has also cited the potential value of its cable assets, which Netflix is not acquiring. Those channels, including CNN, are being broken off into a new, publicly traded company called Discovery Global this summer.

Paramount has argued that the channels have little equity value. The lawsuit in Delaware will pursue more information about the valuation “so that,” Ellison said, “WBD shareholders have what they need to be able to make an informed decision as to whether to tender their shares into our offer.”

Major WBD shareholders have been split over Paramount, with some calling it a superior bid and others siding with the Netflix deal.

“Paramount will continue to use all avenues to wrestle WBD away from Netflix,” Emarketer senior analyst Ross Benes said in an email. “Lawsuits, shareholder appeals, proxy battles, and so on, individually have little chance of swinging the merger. These tactics are part of a broader strategy to keep pressing until something gives and then seizing on that opportunity.”

Meanwhile, President Trump has said that he will be personally involved in reviewing any merger, raising questions about whether his personal predilections will come into play.

Over the weekend he posted a link on Truth Social to a month-old opinion piece from One America News Network titled “Stop The Netflix Cultural Takeover.” The column said “it is time to say no to a woke media monopoly.”

Netflix has exuded confidence in its ability to get the deal across the finish line in the next twelve to eighteen months.

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