Warner Bros. Bid Withdraws Tencent Due to Possible US National Security Review
Tencent withdrew $1 billion in funding for Warner Bros.’ acquisition, according to Paramount, due to worries about national security and CFIUS inspection.
According to Paramount Skydance, Tencent Holdings, the massive Chinese gaming and social media company, pulled out of its offer to purchase Warner Bros. Discovery in order to avoid a potential national security investigation.
In its updated takeover bid filing with the US Securities and Exchange Commission, Paramount stated that the Chinese company had withdrawn its $1 billion financing commitment because it would be a “non-US equity financing source” and that the Committee on Foreign Investment in the United States, or CFIUS, might review the bid. This was the case even though the bid did not require approval from the Federal Communications Commission or CFIUS.
According to a Monday SEC filing, the foreign sovereign wealth funds of Saudi Arabia, Abu Dhabi, and Qatar, which are contributing $24 billion to Paramount’s offer, have consented to relinquish their authority to govern Warner Bros. in order to evade the extra scrutiny.
In an attempt to acquire Warner Bros. Discovery, the corporation behind HBO, CNN, and a renowned film studio, Paramount made a hostile $77.9 billion acquisition offer on Monday, battling with rival bidder Netflix.
CFIUS, a US government body led by the Treasury Secretary that examines mergers for national security purposes, occasionally conducts national security investigations of large transactions involving foreign corporations. It has the authority to compel businesses to alter their ownership arrangements or withdraw entirely from the US.
As national security worries about foreign investment have grown, the Treasury Department has worked to expand its authority under both President Donald Trump and former President Joe Biden.
The US Defense Department has listed dozens of Chinese enterprises, including Tencent, that it claims have connections to China’s military. That is denied by Tencent, whose stock is listed in Hong Kong.
Tencent, which is based in Shenzhen, a financial and technological center in the south, is the owner of Riot Games, the League of Legends creator, and has connections to other major US entertainment companies. The National Basketball Association has a streaming agreement with it as well.
It is a prominent entertainment and social media firm that operates the WeChat messaging and payments service in popular China and with Chinese expatriates outside. It is also the largest equity investor in online games worldwide. Tencent’s market capitalization is over $700 billion, according to the stock exchange in Hong Kong.
Tencent did not immediately respond.
