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The battle for Hollywood’s most prized assets just intensified. Netflix is preparing to amend its acquisition offer for Warner Bros Discovery (WBD) to an all-cash bid. This strategic move aims to expedite the sale and fend off a hostile rival offer from Paramount Skydance.
Sources familiar with the matter revealed the shift on Tuesday. The change is designed to simplify the transaction for shareholders and speed up a closing process that will likely take months.
The Paramount Threat
Paramount has launched an aggressive campaign for WBD. Unlike Netflix, which seeks only the film and streaming assets, Paramount offered $108.4 billion in cash for the entire company. This includes the cable TV business and CNN.
Paramount argues its bid is superior. They are offering $30 per share, compared to Netflix’s original valuation of $27.75 per share. Additionally, Paramount’s bid includes $40 billion in equity backing from Oracle co-founder Larry Ellison and his son, Paramount CEO David Ellison.
Tensions escalated on Monday when Paramount sued Warner Bros. The lawsuit demands transparency regarding the valuation of the “Global Networks” cable division, which would be spun off in the Netflix deal, and how debt is being shifted between divisions. Furthermore, Paramount threatened a proxy fight to nominate new directors to the WBD board.
Inside the Netflix Numbers
Netflix’s original agreement, struck in early December, valued WBD’s studio and streaming assets at $82.7 billion. This initial deal included $4.50 per share in Netflix stock. However, volatility has plagued the negotiations. Since Netflix’s pursuit became public in October, its stock has lost over a quarter of its value.
Despite the pressure, Warner Bros’ board favours the Netflix deal. They argue that Paramount’s offer relies heavily on debt financing, which heightens the risk of closing. The board previously deemed the Paramount offer “inadequate“.
Conversely, Paramount insists that their all-cash bid for the whole entity will clear regulatory hurdles more easily than Netflix’s consolidation plan. Lawmakers have already voiced concerns that further media consolidation could reduce consumer choice and drive up prices.
Shareholders & Stakes
Shareholder sentiment is shifting. Pentwater Capital Management, WBD’s seventh-largest shareholder, threatened to vote down the Netflix deal last week if WBD did not engage with Paramount’s sweetened bid. However, markets reacted positively to the all-cash news. WBD shares rose 1.62% on Tuesday, while Netflix saw a 1.02% bump.
The stakes are incredibly high. The winner gains control of lucrative franchises like “Harry Potter”, “Game of Thrones”, “Friends”, and the DC Comics universe, alongside classics like “Casablanca”.
If the deal falls apart, the costs are steep. Netflix has agreed to a $5.8 billion termination fee if it fails to get regulatory approval. Meanwhile, Warner Bros is obligated to pay Netflix $2.8 billion if it abandons the agreement.
