Warner Bros. Discovery Engages with Paramount's Enhanced Takeover Proposal
Warner Bros. Discovery has reopened negotiations with Paramount Skydance after the rival bidder elevated its offer to $31 per share in cash. This development intensifies the fierce competition for the iconic studio behind franchises like Batman and Harry Potter, potentially displacing Netflix as the preferred acquirer.
Revised Terms and Financial Incentives
Paramount successfully lured Warner's board back to discussions last week by proposing enhanced financial terms. The revised bid includes a substantial increase in the termination fee—from $5.8 billion to $7 billion—should regulatory approvals fail. Additionally, Paramount committed to paying Warner shareholders 25 cents per share quarterly for every quarter beyond September 30 that the deal remains incomplete.
The bidder also agreed to contribute more equity if financing concerns arise from banks during the closing process. This move aims to address potential hurdles and demonstrate Paramount's commitment to securing the acquisition.
Board Evaluation and Netflix's Position
Warner's board has not yet determined whether Paramount's proposal surpasses the existing merger agreement with Netflix. However, directors have pledged to engage further with Paramount. Should a superior deal emerge, Netflix retains a four-business-day window to revise its offer, though the streaming giant has declined to comment on the situation.
Paramount expressed optimism in a statement, saying, "Paramount welcomes the WBD Board's determination and looks forward to continuing to engage constructively with WBD to deliver the benefits of Paramount's proposal to WBD shareholders, the creative community and consumers."
Complex Bidding Dynamics and Asset Differences
The battle for Warner Bros. is complicated by the distinct assets targeted by each suitor. Paramount's $31 per share cash offer aims to acquire the entire company. In contrast, Netflix has proposed $27.75 per share in cash, totaling $82.7 billion including net debt, for the movie and television studios, content catalog, and HBO Max streaming service.
Warner Bros. plans to spin off its television division into Discovery Global, a separately traded entity. The value of Netflix's bid partially hinges on Discovery Global's debt level and equity value once it begins trading. Warner's board estimates Discovery Global could be worth between $1.33 and $6.86 per share, potentially elevating the total shareholder return above Paramount's earlier $30 per share offer.
Analyst Perspectives and Market Reactions
Matthew Dolgin, senior equity analyst at Morningstar, noted the subjective nature of comparing the bids. "We expect shareholder lawsuits if Netflix is the ultimate winner, and because the deals are not apples to apples—with the suitors not vying for identical assets and other details surrounding the respective bids requiring discretion—determination of which deal is better will always be subjective," he wrote.
Ross Benes, senior analyst at eMarketer, raised concerns about motivations behind the bidding war. "Given how much the market cap for Netflix and Paramount have fallen since this bidding war has started, it is reasonable to question if an increased bid from either company is actually driven by business interests rather than ego," he stated. Shares of both potential buyers have declined throughout the saga.
Strategic Implications and Regulatory Considerations
This high-stakes battle will reshape Hollywood's power structure, granting the victor control over one of the industry's most coveted studios, an extensive content library, and lucrative franchises like "Game of Thrones" and DC Comics. Netflix, with its ample cash reserves, could potentially increase its offer for the HBO Max owner.
Paramount argues it has a clearer path to U.S. regulatory approval than Netflix. The company has indicated that if Warner Bros. rejects the new bid, it may launch a board challenge at this year's annual meeting. Potential director candidates include Matthew Halbower, chief executive of Pentwater Capital Management, one of Warner Bros.' largest shareholders.
Shareholder Pressure and Upcoming Developments
Activist investor Ancora Holdings, which holds a small stake in Warner Bros., has increased pressure on the company by criticizing its engagement with Paramount. Warner Bros. maintains that its board consistently acts in the best interests of the company and shareholders.
The company plans to hold a shareholder vote on the Netflix deal on March 20. Meanwhile, Warner Bros. will publish quarterly results this week, potentially providing clearer insights into the value of its cable television assets. Paramount is scheduled to report results on Wednesday, adding further context to this unfolding corporate drama.
