Warner Bros. Discovery shareholder vote weighs Paramount deal

Warner Bros. Discovery shareholders will vote Thursday on the company’s proposed merger with Paramount Skydance, bringing a buzzy sale process one step closer to the finish line.

Paramount has offered $31 per share for the entirety of Warner Bros. Discovery — its cable TV networks like TNT, CNN and Discovery Channel as well as its streaming service HBO Max and the Warner Bros. film studio. That proposal was the result of several offers since September and a bidding war with Netflix and Comcast.

In late February, Paramount’s upped offer to $31 spurred Netflix to walk away from its own proposed deal for WBD’s studio and streaming assets.

Paramount’s offer includes a $7 billion breakup fee in the event the proposed merger doesn’t win regulatory approval. The company also agreed to pay the $2.8 billion breakup fee that WBD owed Netflix for the termination of that agreement.

Paramount and WBD have said the deal is expected to close in the third quarter, pending regulators’ sign off.

Top proxy advisory firm Institutional Shareholder Services recommended that shareholders accept the deal, which it said was “the result of a competitive sales process and public bidding war.”

“Further, shareholders are receiving a meaningful premium to the unaffected share price, there is a potential downside risk of non-approval, and the cash consideration provides liquidity and certainty of value to shareholders,” ISS wrote in its report. “Given these factors, support for the proposed transaction is warranted.”

However, ISS did fall short of advising shareholders to approve the proposed golden parachute for WBD CEO David Zaslav as part of the deal. Zaslav’s exit package consists of hundreds of millions of dollars in severance and other stock awards tied to Paramount’s acquisition.

The potential payout — which totals more than $800 million — highlights an obscure tax rule originally designed to limit CEO pay, CNBC recently reported.

ISS called out the $500 million in proposed stock awards, as well as “a recently-added excise tax gross-up, valued at approximately $335 million,” or what’s known as the so-called golden parachute excise tax. Originally created by Congress in the 1980s, the tax was meant to limit what many considered to be massive payouts to CEOs upon a change of control or sale.

— CNBC’s Robert Frank contributed to this report.