Netflix has switched to an all-cash offer for Warner Bros. Discovery’s studio and streaming assets without raising the $82.7bn price tag. Paramount’s competing efforts To catch a Hollywood monster.
The new all-cash bid — $27.75 a share — has unanimous support from the Warner Bros. board, according to Tuesday’s regulatory filing.
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Both Netflix and Paramount Skydance have coveted Warner Bros. for their leading film and television studios, extensive content libraries and major franchises such as Game of Thrones, Harry Potter and DC Comics superheroes Batman and Superman.
Paramount changed its terms and engaged in an aggressive media campaign to try to convince shareholders that its bid was superior, but Warner Bros. rejected the David Ellison-led company. David Ellison’s father, billionaire Oracle founder Larry Ellison, is close to US President Donald Trump. Paramount declined to comment on Netflix’s all-cash offer on Tuesday.
Warner Bros. will hold a special investor meeting to vote on the Netflix deal, the streaming pioneer said, with the meeting expected to take place by April.
“Our revised all-cash agreement will enable a faster timeline for the stockholder vote and provide greater financial certainty,” Netflix co-CEO Ted Sarandos said in a statement.
Shares of Netflix, which is scheduled to report quarterly earnings after the market close, rose 0.7 percent. Paramount shares were down 1.1 percent, while Warner Bros. shares were up 0.7 percent in midday trading.
Alex Fitch, portfolio manager at Harris Oakmark, Fifth largest investor With nearly 96 million shares outstanding as of September 30, the bidding war for Warner Bros. is expected to be far from over.
“This new deal only adds to the pressure,” Fitch said. “The changes show that Netflix is serious about winning, and the accelerating shareholder vote means Paramount needs to act urgently. Now, it’s up to Paramount to deliver a clearly superior offer if they want to make it happen.”
Shares of Netflix, which have fallen nearly 15 percent since the merger was announced on Dec. 5, closed Friday at $88 per share, just below the original bid’s $97.91 floor price. That drop was part of Paramount’s argument that its bid was superior.
The new $27.75-per-share offer from Netflix replaces its previous cash-and-stock bid of $23.25 in cash and $4.50 in Netflix stock.
“The merger consideration is a fixed amount of cash to be paid by the investment-grade company, which assures (Warner Bros.) stockholders of value and liquidity immediately upon the closing of the merger,” Warner Bros. said.
The company’s board also disclosed its valuation for Discovery Global, a planned spin-off that would include television assets including CNN and TNT Sports and the Discovery+ streaming service.
The Netflix merger deal is superior to Paramount Skydance’s $30-per-share cash bid for the company because Warner Bros. investors will retain a stake in the independently traded Discovery Global.
Warner Bros. consultants used three separate approaches to evaluate Discovery Global. Applying a single value across the company, the lowest share price ever reached was $1.33 per share. If the spin-off is involved in a future deal, the high end of the range they set was $6.86 per share.
Paramount said the streaming giant’s offering for the central cable spinoff is effectively worthless.
looming deadline
A rival bidder went to court on January 12 to expedite the disclosure of this information, so investors can evaluate competing offers for Warner Bros. A Delaware court judge denied the request, saying Paramount had failed to show that Warner Bros.’ allegedly inadequate disclosures about its CTV business would cause it irreparable harm.
Paramount Skydance, whose tender offer expires on January 21, did not immediately respond to a Reuters request for comment.
“Paramount will make another appeal to shareholders. Unless Paramount raises its bid, the appeal will be window dressing,” said E-Markets analyst Ross Baynes.
The race to a shareholder vote is expected to conclude later this year as Warner investors gauge the value of cable assets.
Warner Bros. reiterated its reasons for rejecting the Paramount bid, saying the all-cash offer of $30 per share was insufficient after considering “cost and numerous risks, costs and uncertainties”.
“Netflix’s move to get an all-cash take on the Warner Bros. deal is a smart pivot at a time when its own share price has started to weaken,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “A cash bid removes uncertainty and is arguably more attractive from Warner Bros.’ perspective, even if it does nothing to ease regulatory scrutiny.”
A merger with Netflix would leave the combined company with roughly $85bn in debt, compared with $87bn for Paramount. But Netflix is worth much more with a market value of $402bn compared to $12.6bn for Paramount.
A Netflix tie-up with Paramount — with a leverage ratio of less than four — would be less leveraged than a ratio of about seven.
Even Netflix agreed Allowing Warner Bros. to reduce up to $260 million in debt owed by Discovery Global, according to regulatory filings.
Netflix also has an investment-grade credit rating, while Paramount’s bonds are rated junk by S&P and may come under further pressure, Warner Bros. said in its filing.
Winning shareholder approval, however, could be just the first step in what could be a long process, as lawmakers across the political spectrum have voiced concerns that further media consolidation could raise prices and reduce consumer choice.
The Ellisons have argued that their relationship with Trump gives them an easier regulatory path to approval.