Netflix has backed out of its pursuit of studio and streaming assets owned by Warner Bros. Discovery, declining to raise its offer Thursday after WBD deemed Paramount’s recently-increased bid “a ‘company superior proposal.'” The development would seem to move Paramount into pole position to go forward with a merger agreement to acquire WBD in its entirety, although any deal would still need to gain regulatory approval.
“We believe we would have been strong stewards of Warner Bros.’ iconic brands, and that our deal would have strengthened the entertainment industry and preserved and created more production jobs in the U.S.,” Netflix co-CEOs Ted Sarandos and Greg Peters said in a statement Thursday. “But this transaction was always a ‘nice to have’ at the right price, not a ‘must have’ at any price.”
“Netflix is a great company and throughout this process Ted, Greg, Spence and everyone there have been extraordinary partners to us,” David Zaslav, CEO of Warner Bros. Discovery, said in a statement. “We wish them well in the future. Once our Board votes to adopt the Paramount merger agreement, it will create tremendous value for our shareholders. We are excited about the potential of a combined Paramount Skydance and Warner Bros. Discovery and can’t wait to get started working together telling the stories that move the world.”
Earlier this month, Paramount pledged to cover the $2.8 billion termination fee WBD would owe Netflix if it backed out of the deal for a superior proposal. When WBD made the “company superior proposal” designation on Thursday, it triggered a four-day window wherein Netflix could have made changes to its offer. But Netflix alost immediately decided to back out, and expressed confidence in its own business.
The amended offer Paramount issued this week was an all-cash deal of $31/share to acquire the entire company, an outcome that would bring CBS Sports and TNT Sports under one roof. Paramount also offered a $7 billion regulatory termination fee, a $1.2 billion increase from the figure both Paramount and Netflix had both agreed to. Moreover, the offer included a $0.25/share “ticking fee” payable to WBD shareholders for every quarter the deal does not close “beginning after September 30, 2026.”
“We are pleased WBD’s Board has unanimously affirmed the superior value of our offer, which delivers to WBD shareholders superior value, certainty and speed to closing,” David Ellison, chairman/CEO of Paramount, said in a statement before the Netflix backed out. Paramount said that Bank of America Merrill Lynch, Citi and Apollo would provide a debt commitment of $57.5 billion for the deal and that the Ellison Trust is also contributing an equity commitment of $45.7 billion that is guaranteed by Larry Ellison.
The Netflix merger agreement, which was announced in December and modified to an all-cash deal one month later, was for $27.75/share and would have left Discovery Global as a standalone public entity. In an interview with Variety last week, Sarandos noted the company’s reputation for being disciplined buyers. Sarandos testified at a Senate hearing earlier this month where he talked about the deal and called Warner Bros. “both a competitor and a supplier.”
Paramount had argued Discovery Global would not have any equity value and possesses a weaker sports rights portfolio than Versant. In a proxy filing earlier this month, Paramount said that the Netflix transaction could be worth as little as $21.23/share if the streaming and studio business assumed all of the debt currently slated for the global linear networks. WBD has disclosed that Discovery Global would have $17 billion of debt “as of June 30, 2026” with plans for a $900 million reduction by year’s end.
Paramount has previously stated its belief that it could reach $9 billion in synergies from the combination of the Paramount-Skydance merger and the WBD offer. The company said that it was “firmly on track to deliver at least $3 billion in efficiencies through 2027” when it released its earnings information on Wednesday. WBD’s board had previously called the figure “ambitious” and something that “would make Hollywood weaker, not stronger.”
It remains unknown if and/or how these efficiencies would affect the sports divisions of the companies, which overlap in a few areas. CBS and TNT have worked together on the presentation of March Madness since 2011, and the companies also both have rights deals for collegiate football and basketball, along with soccer.
The pursuit of Warner Bros. Discovery began last fall with Paramount making several offers before the company formally opened bidding. After WBD announced that it was entering into a transaction with Netflix, Paramount launched a hostile tender offer, proceeded with a lawsuit to disclose financial details and outlined plans for a proxy fight. Paramount recently said that a regulatory waiting period for its bid concluded last week and claimed it has “no statutory impediment” in closing a deal in the United States.
Netflix granted WBD a seven-day waiver period last week that allowed it to engage with Paramount, which closed on Monday at 11:59 PM ET. Shortly thereafter, WBD deemed that Paramount had submitted a revised offer that “could reasonably be expected to lead to a ‘company superior proposal'” over the deal with Netflix.
