Netflix, Paramount Battle for Warner Bros Assets Amidst Bidding War

Netflix possesses substantial cash reserves and could increase its offer for Warner Bros Discovery, according to two individuals with knowledge of the matter. This potential move comes as competing bidder Paramount Skydance considers raising its own offer.

Credit: UNSPLASH

The two media giants are engaged in a heated rivalry for Warner Bros. This includes its storied catalogue of iconic franchises, such as "Harry Potter", "Game of Thrones", DC Comics, and Superman.

Warner Bros is proceeding with a shareholder vote on Netflix's existing offer. However, the company has granted Paramount a week to present a more compelling bid.

Netflix has proposed USD 27.75 per share, or USD 82.7 billion, for Warner Bros’ studio and streaming operations. Paramount, in contrast, has offered USD 30 per share, or USD 108.4 billion, for the entire company.

Paramount's offer encompasses Discovery Global, which houses assets like CNN, HGTV, and other television networks. Netflix, the creator of "Stranger Things", reported approximately USD 9.03 billion in cash and cash equivalents on its balance sheet as of Dec. 31.

This significant financial capacity provides Netflix with flexibility to potentially raise its bid. Warner Bros recently rejected Paramount’s latest takeover proposal.

Despite the rejection, Warner Bros gave Paramount a deadline to submit a best and final offer. Paramount had informally discussed a USD 31 per share offer with the Warner Bros board.

Matt Britzman, a senior equity analyst at Hargreaves Lansdown, said, "Netflix still looks to be in the driving seat, but that can quickly shift." He added, "Price will likely be the deciding factor — Warner’s concerns around funding and regulatory risk are real, but at a high enough number, they become secondary."

Britzman expects Netflix to counter any improved offer from Paramount. He also noted that the deals were not directly comparable.

He further commented, "But the real twist is that these deals were never apples-to-apples, and it may ultimately come down to how much value the board and shareholders assign to the network business that Netflix would leave behind."

Paramount has stated its intention to continue pursuing the tender offer it launched for the studio. The company plans to oppose what it deems the "inferior" Netflix merger.

Paramount also intends to nominate directors for the upcoming Warner Bros annual meeting. Attention is now focused on whether the CBS-parent will improve its offer.

Warner Bros confirmed that Netflix is permitted to match any improved bid under the terms of their merger agreement. Warner Bros Chairman Samuel DiPiazza Jr. and CEO David Zaslav addressed Paramount’s board in a letter.

They stated, "We continue to recommend and remain fully committed to our transaction with Netflix." Paren Knadjian, a partner at Eisner Advisory Group, observed Paramount’s persistent efforts.

Knadjian suggested this persistence indicates Paramount’s belief in its ability to succeed. He explained that "board-level concerns around financing structure, timing, and regulatory approval meaningfully detract from the attractiveness of Paramount’s proposal, irrespective of headline valuation."

Paramount last week proposed paying Warner Bros investors additional cash for every quarter the deal does not close after this year. The company also offered to cover the USD 2.8 billion breakup fee Warner Bros would owe Netflix if it withdrew from their agreement.

However, Warner Bros deemed these revised terms insufficient. The board indicated that the revised terms did not meet the threshold for what it would consider a superior proposal.

In a letter, the board highlighted several unresolved issues with Paramount’s offer. These included responsibility for a potential USD 1.5 billion junior lien financing fee.

The board also questioned how the transaction would proceed if debt financing failed. Additionally, concerns were raised about whether equity funding led by Larry Ellison was fully committed.

---

• Netflix is competing with Paramount Skydance for Warner Bros Discovery assets.

• Netflix holds approximately USD 9.03 billion in cash, potentially allowing it to increase its bid.

• Warner Bros currently favours Netflix's offer but has given Paramount a deadline to submit a "best and final" offer.

Source: REUTERS