Larry Ellison’s Guarantee Ups Warner Bros. Stakes to a New Level

Larry Ellison is throwing his personal fortune behind Paramount Skydance Corp.’s bid for Warner Bros. Discovery Inc., raising the stakes in a fiercely contested battle with Netflix Inc.
Both suitors moved on Monday to strengthen the financial backing for their offers, though they stopped short of increasing their bids. Netflix refinanced a portion of its planned $59 billion of debt as a way to ensure a lasting investment-grade rating — a key advantage it holds over the lower-rated Paramount.
But it’s the personal guarantee of Ellison, the world’s fifth-richest person with a $246 billion fortune, that could force a rethink by Warner Bros. The board previously urged shareholders to reject Paramount’s offer in part because the billionaire father of its Chief Executive Officer David Ellison had backed the $40.4 billion of equity financing with a revocable trust that could, as the name implies, be withdrawn or amended at any time.

Paramount has been aggressively pursuing Warner Bros. for months and Ellison was taken by surprise when the board agreed to a deal with Netflix for $82.7 billion for the streaming and studio assets. The strength of the financing for each bid has emerged as a decisive issue in the takeover battle, which unleashed two massive debt-fueled offers that rank among the largest in the past decade. Paramount took its offer of $30 a share, or $108.4 billion including debt, for the entire company directly to shareholders.
“In an effort to address Warner Bros.’s amorphous need for ‘flexibility’ in interim operations, Paramount’s revised proposed merger agreement offers further improved flexibility to Warner Bros. on debt refinancing transactions, representations and interim operating covenants,” Paramount said in a statement on Monday.
Personal Backing
Larry Ellison, 81, the chairman of Oracle Corp., agreed to provide an irrevocable personal guarantee of $40.4 billion in equity financing for the offer and any damages claims against Paramount, according to the statement. Ellison also agreed not to revoke the family trust and will keep its assets in place while the Warner Bros. transaction is pending. The company said it’s publishing records confirming that the Ellison family trust owns about 1.16 billion shares of Oracle common stock and that all material liabilities are publicly disclosed. 
Bloomberg Intelligence Senior Credit Analyst Stephen Flynn joins Paul Sweeney and Scarlet Fu to discuss.
Paramount also offered to increase its regulatory reverse termination fee to $5.8 billion from $5 billion. Warner Bros. would have to pay $2.8 billion to Netflix if it backs out of its deal and goes with another suitor, according to terms of the agreement.
Warner Bros. shares gained 3.4% in New York afternoon trading, and changed hands during the session for as much as $28.98. Paramount rose as much as 8.1% while Netflix dropped about 1%. 
Paramount’s offer “continues to be the superior option to maximize value for Warner Bros. shareholders,” David Ellison said in the statement. “Because of our commitment to investment and growth, our acquisition will be superior for all Warner Bros. stakeholders, as a catalyst for greater content production, greater theatrical output, and more consumer choice.”
Deal Prospects
Ellison’s personal guarantee gives Paramount a critical boost to its financing, some market participants say. Warner Bros.’ reason for opposing the bid “is dissipating fast,” said Louis Navellier, chief investment officer at Navellier & Associates. “To take a bid that’s less valuable because you question a trust is totally bogus,” he said. “The debt is not an issue because of the full faith and credit of Larry Ellison.”
That still might not be enough to persuade the Warner Bros. board, according to an initial analysis by Bloomberg Intelligence, which said the revised termination fee and financing costs still “leave the $30-a-share bid inferior to Netflix’s.” 
The battle for Warner Bros., the century-old studio behind legendary films from Casablanca to Batman, is one of the biggest media deals in years and has the power to reshape the entertainment industry.




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