Scorned Paramount sues Warner Bros Discovery

Paramount Skydance (PSKY) is suing the media group Warner Bros. Discovery (WBD) in a Delaware court. The background is that PSKY wants to take over the entire WBD group. However, its board of directors has concluded a sales agreement with Netflix for Warner Bros. and wants to continue operating Discovery as an independent entity. Paramount's bid is not only too low but also too uncertain.

Therefore, the WBD board of directors has rejected PSKY's offers multiple times. This angers PSKY CEO David Ellison, son of Oracle co-founder Larry Ellison. Ellison Jr. is now trying to force the issue.

On the one hand, he threatens to nominate other members to WBD's board of directors. If he receives enough votes from WBD shareholders for this, he could effectively “negotiate” with his people on both sides of the negotiating table. The new board would then advise WBD shareholders to tender their shares to PSKY, not Netflix. Should the shareholders follow this advice, Netflix would receive 2.8 billion US dollars as compensation for the breach of contract.

Stalling for time through litigation

On the other hand, PSKY is filing a lawsuit against WBD at the Delaware Court of Chancery. According to a circular from Ellison Jr., the yet-to-be-filed lawsuit accuses the WBD board of directors of not providing its shareholders with sufficient information. As a result, they cannot properly decide whether to sell to Netflix or Paramount (or neither). For example, it is unclear how the board values the Discovery division, which is to remain independent in a sale to Netflix but not in a sale to PSKY. PSKY also wants an explanation for the discount on its offer due to the uncertain financing of the purchase price.

The lawsuit is likely driven by the desire to gain time and delay the vote of WBD shareholders on the sale. Meanwhile, PSKY could try to secure financing for a higher bid to outbid Netflix after all.

(ds)