Warner Bros. Discovery denies initial Paramount takeover bid

After reports emerged last month that the new David Ellison-run Paramount had submitted a bid to takeover Warner Bros. Discovery, it seems the two sides are at a disagreement over price.

According to a report by Bloomberg late Saturday night, Warner Bros. Discovery has “rebuffed” an initial takeover offer from Ellison’s Paramount, with the offer being priced at approximately $20 per share.

Per Bloomberg, Ellison has several other options should he want to continue to pursue the deal. He could simply raise his offer, attempt to go directly to shareholders, or seek additional financial backing. The latter option, additional financial backing, has already reportedly been discussed, with Paramount having engaged in talks with asset management firm Apollo Global Management about further backing last week.

The potential deal comes at a crucial time for Warner Bros. Discovery. The company is prepared to complete a split between its legacy assets, like the TNT Sports cable networks, and its future-facing streaming and studios businesses, which include HBO Max and the company’s movie studio. In the announced split, the legacy assets, dubbed Discovery Global, will take on the majority of Warner Bros. Discovery’s current debt load, freeing up its streaming and studios business.

It has been reported that Warner Bros. Discovery CEO David Zaslav could use this impending split to try and convince the company’s board not to take Ellison up on his offer, positing that the company will be worth more once the split off is complete.

Recently, Bank of America researcher Jessica Reif Ehrlich penned a report supporting the case for a split. Ehrlich predicted a split could generate $30 per share for Warner Bros. Discovery shareholders, much higher than the approximately $20 per share Bloomberg reported was Paramount’s initial offer. The crux of Ehrlich’s argument is that a streaming and studios business unburdened by debt would spur “a bidding war amongst potential buyers,” whereas few potential buyers exist for the whole of Warner Bros. Discovery’s current business.

Ehrlich also predicts that a split could help unlock value for Discovery Global, with the new company positioned advantageously to acquire linear TV assets in Europe, where the company already has a sizeable presence.

Considering the current gap between Ellison’s offer and the share price analysts are suggesting could be attained post-split, it’s looking more likely than not that Warner Bros. Discovery will continue down its split path, at least for now. However, if Paramount and Ellison come back with a higher offer, it’ll be more difficult for Zaslav to convince his board to risk going forward with the split, rather than taking the surefire deal with Paramount.

If such a deal were to close, a combined Paramount and Warner Bros. Discovery would be a formidable player in live sports. In addition to the current CBS Sports portfolio, Paramount would add the remainder of the NCAA Men’s Basketball Tournament, select College Football Playoff games, MLB and NHL postseason inventory, NASCAR races, the French Open, and more.