Netflix Presents All-Cash Bid for Warner Bros Discovery Assets

Netflix has switched to an all-cash offer for Warner Bros Discovery’s studio and streaming assets. The all-cash offer of USD 27.75 per share, maintaining the overall USD 82.7 billion valuation, aims to counter Paramount’s rival efforts for the Hollywood company. The Warner Bros board has unanimously supported the new all-cash proposal.

Credit: NETFLIX

Both Netflix and Paramount Skydance seek Warner Bros for its leading film and television studios, extensive content library, and major franchises. These include "Game of Thrones," "Harry Potter," and DC Comics' superheroes Batman and Superman.

The new all-cash agreement replaces Netflix’s earlier cash-and-stock bid. That previous offer included USD 23.25 in cash and USD 4.50 in Netflix stock per share.

Warner Bros stated that the fixed cash amount from an investment-grade company provides stockholders with "certainty of value and liquidity immediately upon closing the merger." Co-CEO Ted Sarandos said the revised agreement would "enable an expedited timeline to a stockholder vote and provide greater financial certainty."

Warner Bros will hold a special investor meeting to vote on the Netflix deal. The streaming company expects this meeting to be held by April.

Credit: PARAMOUNT

Paramount has altered its terms and engaged in an aggressive media campaign to convince shareholders that its bid is superior. However, Warner Bros has spurned the David Ellison-led company.

Warner Bros reiterated its reasons for rejecting Paramount’s offer, stating its all-cash bid of USD 30 a share was insufficient. The company cited the "price and numerous risks, costs and uncertainties" associated with Paramount's proposal.

The Warner Bros board also disclosed its valuation for Discovery Global, a planned spin-off. This entity will contain television assets, including CNN and TNT Sports, and the Discovery+ streaming service.

Advisers for Warner Bros used three approaches to value Discovery Global. The lowest share price determined was USD 1.33 per share, while the high end of the range was USD 6.86 a share. Paramount has described the cable spinoff as "effectively worthless."

Portfolio Manager Alex Fitch for Harris Oakmark predicted the bidding war for Warner Bros may not be over. Harris Oakmark held about 96 million shares of Warner Bros as of Sept. 30.

Fitch said the changes show "Netflix is serious about winning, and the accelerated shareholder vote means Paramount needs to act with urgency." He added, "Now, it is up to Paramount to provide a clearly superior offer if they want to get this done.”

Paramount Skydance's tender offer expires Jan. 21. Emarketer Analyst Ross Benes commented that "Unless Paramount raises its bid, the appeal will be window dressing."

A merger with Netflix would result in the combined company having roughly USD 85 billion in debt. This compares to about USD 87 billion if Paramount were to acquire Warner Bros.

Netflix, with a market valuation of USD 402 billion, is worth considerably more than Paramount, which has a market valuation of USD 12.6 billion. The Netflix tie-up would carry a leverage ratio of under four, compared to about seven with Paramount.

Netflix also agreed to allow Warner Bros to reduce the amount of indebtedness to be borne by Discovery Global by USD 260 million. Netflix holds an investment-grade credit rating, while Paramount’s bonds are rated at junk levels.

Shares of Netflix were up 0.9%, while Paramount shares were down 1.9%. Warner Bros' shares were down 0.5% in early trading. Netflix is slated to report quarterly earnings after the market close.

Winning shareholder approval may be the first step in a long process, given regulatory scrutiny. Lawmakers have voiced concerns that further media consolidation could drive up prices and reduce consumer choice.

The Ellisons have argued their relationship with President Donald Trump would provide an easier regulatory path to approval. Senior Equity Analyst Matt Britzman for Hargreaves Lansdown said Netflix’s move was a "smart pivot."

Britzman added that "A cash bid strips away uncertainty and is unquestionably more appealing from Warner Bros.’ perspective, even if it does nothing to ease regulatory scrutiny."

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• Netflix has made an all-cash offer for Warner Bros Discovery’s studio and streaming assets, maintaining the USD 82.7 billion overall price with a per-share bid of USD 27.75.

• The Warner Bros board has unanimously supported the Netflix offer, which aims to shut down a rival bid from Paramount Skydance.

• The Netflix deal replaces an earlier cash-and-stock proposal, with Warner Bros noting the certainty of value and liquidity from the new fixed cash amount.

Source: REUTERS