Following Monday’s all-cash hostile takeover offer from Paramount for Warner Bros. Discovery, the bidding process could stretch “months” into next year, according to Lucas Shaw of Bloomberg. Although Netflix had entered into a definitive agreement to acquire WBD’s streaming and studio assets, Paramount is looking to swoop in and acquire the entire media conglomerate outright for $30/share.
It remains unknown if and/or how high Netflix and Paramount could be willing to extend its bids. WBD shareholders, however, are expected to benefit from any potential bidding war. Paramount on Wednesday sent a new letter to WBD shareholders — its third in less than a week — urging them to tender their shares, going against the current recommendation from the WBD Board of Directors.
Paramount chairman/CEO David Ellison indicated to CNBC that Paramount wants to finish what it started, referencing the three unsolicited bids it put forth for Warner Bros. Discovery before the company formally initiated a review of strategic alternatives. But he was overheard at the UBS Global Media and Communications Conference acknowledging that the WBD board cannot accept the Paramount offer as currently constituted because it would be “admitting breach of fiduciary duty,” per James Faris of Business Insider.
Ellison has billed his deal as “a superior alternative to the Netflix transaction,” which Paramount argues will trigger a lengthy regulatory process.
Netflix co-CEO Ted Sarandos said Monday that he is still “super confident” about closing the deal that would create a Hollywood behemoth with more than 400 million combined subscribers across streaming services.
Paramount is arguing that its deal is “financially superior” to the Netflix deal, a cash-stock offer of $27.75/share for the streaming and studios component of the company. That bid “is materially lower than advertised” because it overvalues the WBD linear cable networks that would be left behind with WBD shareholders. Paramount is valuing those networks at $1/share with expected net debt of $15 billion. The company also called out a mechanism within an 8-K filing “providing a dollar-for-dollar reduction in the purchase price” should more debt be allocated to streaming and studios due to “an unspecified cap” on global networks.
It should be noted that WBD still has plans to spin out its streaming and studio assets into the Warner Bros. standalone company in Q3 2026 before the completion of the Netflix transaction. The standalone Discovery Global would house cable networks such as TNT, TBS, CNN, truTV, Food Network and TLC, along with digital assets Discovery+ and Bleacher Report.
Paramount chief strategy officer, COO and director Andy Gordon said on an M&A call Monday that Warner Bros. Discovery would need to respond to its tender offer within 10 business days. WBD has acknowledged receipt of the offer and advised its stockholders not to take action at this time, refusing to alter its recommendation with respect to the Netflix deal. The offer will remain open for 20 business days, after which Paramount has the option to extend the deal as long as it deems necessary for WBD shareholders.
Before Paramount submitted its hostile bid, it accused Warner Bros. Discovery of never significantly engaging with the six proposals it put forth, the last of which aligns with its current direct appeal to shareholders.
In addition, Paramount attorneys argued that WBD seemed to favor the deal with Netflix and had “embarked on a myopic process with a predetermined outcome that favors a single bidder.” The company also addressed the anticompetitive concern of a Netflix transaction that would grant the streamer “a 43% share among global SVOD subscribers.” This could invite government scrutiny since it would exceed the 30% threshold outlined in the 2023 antitrust guidelines from the the U.S. Department of Justice.
Ellison himself sent a text message to WBD CEO David Zaslav last Thursday afternoon saying that the company had not included its “best and final” offer.
If successful in its bid, Paramount plans to target cost savings and operating efficiencies totaling $6 billion in synergies while “maintaining the creative engines of the company.” In its letter, Paramount wrote that its content savings estimate is less than a 10% “reduction of combined spend, none of which is derived from film/studios.” Sarandos said that Netflix would be “making jobs” rather than cutting them, though its plan for Warner Bros. would still enact between $2 and $3 billion of synergies.
If Warner Bros. Discovery backed out of the Netflix deal, it would owe the streaming company a payment of $2.8 billion as a breakup fee. Conversely, should Netflix be unable to close the deal, presumably because of a potential regulatory impediment, it would need to pay WBD $5.8 billion, equivalent to 8% of the deal’s equity value. Paramount is offering WBD a $5 billion breakup fee.
