Paramount on Monday began marketing a massive $44.4 billion debt offering to finance its acquisition of Warner Bros. Discovery, pending a federal judge’s ruling that poses the final hurdle to closing the deal.
“The actual closing date of the acquisition is uncertain,” Paramount said in an SEC filing today. The merger “will not be completed until the closing conditions of the WBD Merger Agreement have been satisfied or waived.” He set a date of October 7 for the purposes of the offer.
The David Ellison-led company has met all but one requirement: A federal court judge must approve the proposed settlement of an antitrust lawsuit against Paramount by 12 state attorneys general led by California’s Rob Bonta. Ellison and Bonta disclosed the agreement a week ago, but U.S. District Judge Araceli Martinez-Olguin refused to approve it during a Sept. 24 hearing. Instead, she set aside a few days for opposition briefs. Responses were expected today at noon PT, with the attorneys general and Paramount both defending the settlement.
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At the same time, Paramount submitted a $44.4 billion offer, which includes about $32 billion in investment-grade debt, in dollars and euros, and the equivalent of $12.4 billion in junk bonds, which have higher interest rates. According to Bloomberg, Bank of America and Citigroup today held calls to market the debt and have built up enough demand to cover supply.
Paramount said it would use the proceeds along with available cash, borrowings under previously announced term loan financings and equity financing to finance the purchase of WBD.
A total of $51.9 billion in debt financing transactions includes a seven-year, $7.5 billion Term Loan B that lenders began marketing last week. The company has set up a $49 billion bridge loan as contingent financing if permanent financing is not in place upon closing of the transaction.
In the filing, and assuming the October 6 close, Paramount calculated its total cash consideration payable to WBD common stockholders at $78 billion, including the $31 per share payment; about a week of so-called ticking fees which come into effect on October 1; and closing payments of approximately $1.1 billion for vested WBD stock awards.
Paramount revealed plans to acquire WBD in February, with an equity value of about $80 billion and an enterprise value of about $110 billion. Equity value reflects what WBD shareholders walk away with in cash. Enterprise value is the value of equity, plus debt, less cash – or the total value of the transaction.
Warner had about $34 billion in debt and $3.4 billion in cash as of June.
With a market cap of $11.5 billion, Paramount Skydance is significantly smaller than WBD ($77.4 billion market cap). The combined company will have more than $80 billion in long-term debt as Par assumes WBD’s obligations and accumulates more to finance the acquisition. Annual interest expenses will well exceed $6 billion, a level that has alarmed critics of the deal. Ellison has targeted $6 billion in synergies within the combined company.
Equity financing includes up to $46.7 billion, plus ticking fees, from the Lawrence J. Ellison Revocable Trust and $250 million from RedBird Capital. But they will not pay this amount because both have sold their subscription rights to other parties, including sovereign funds of Saudi Arabia, Abu Dhabi and Qatar, as well as the American investment bank LionTree. The outside investors will each receive newly issued non-voting shares of Paramount Class B stock upon closing. The trust has agreed to secure equity funding.
The Ellisons also reportedly considered Elon Musk and other wealthy individuals becoming stock investors.
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