(Feb 25): Warner Bros Discovery Inc said a new US$31 ($39.21)-a-share buyout offer from Paramount Skydance Corp could lead to a better deal than its existing agreement with Netflix Inc, kicking off another potential round of bidding for the famed Hollywood studio.
Warner Bros isn’t withdrawing its recommendation that investors support Netflix’s US$27.75-a-share agreement to buy the company’s studio and HBO operations, according to a statement on Tuesday. Instead, it’s saying the latest Paramount terms meet the threshold for further talks.
Paramount’s latest salvo shows the company, led by David Ellison, isn’t dropping its pursuit of Warner Bros anytime soon. The sweetened offer will test Netflix’s willingness to pay up for the Warner Bros’ production studios and a library that includes the DC Comics franchise and Game of Thrones.
“The board has not made a determination as to whether the revised” Paramount proposal is superior to the merger with Netflix, Warner Bros said. It plans more talks with Paramount and said Netflix will have four business days to respond if the board backs the sweetened offer.
The board’s decision came after a seven-day period in which Paramount was allowed to once again negotiate with Warner Bros. Paramount has been seeking to acquire the parent of HBO and CNN since September, raising its offering price multiple times and making changes to the terms requested by the Warner Bros board.
The two companies were still negotiating late into last night and had to hang up the phone at midnight when the discussion window expired, according to people with knowledge of the matter. That left lingering questions that the parties can now address.
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The revised Paramount proposal marks an increase of US$1 from the company’s previous US$30-a-share offer, which was valued at about US$108 billion including debt. Netflix’s proposal is valued at US$82.7 billion on that basis, though Warner Bros believes a spin-off of its cable channels will deliver additional value to its investors.
Paramount’s latest proposal includes a “ticking fee” of 25 cents per share for each quarter after Sept 30 that the deal hasn’t received regulatory approval, along with a US$7 billion payment to Warner Bros if regulators block the sale. Paramount also reaffirmed it would take care of the US$2.8 billion termination fee that Warner Bros would have to pay to Netflix if it scraps its deal with the streaming service.
“Paramount welcomes the WBD Board’s determination and looks forward to continuing to engage constructively with WBD to deliver the benefits of Paramount’s proposal to WBD shareholders, the creative community and consumers,” it said in a statement late on Tuesday.
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Paramount also agreed to contribute more equity if any of its lenders used doubts about its solvency to avoid funding the deal, and it won’t use the deterioration of Warner Bros’ cable networks as an excuse to renege on the deal.
Shares of Warner Bros were down less than 1% in extended trading after the announcement on Tuesday, possibly because some investors were expecting more. Paramount rose more than 1% and Netflix about 0.5%.
Ellison, Paramount’s chief executive officer, launched a tender offer to acquire Warner Bros shares in December, days after the Netflix deal was announced. The move by Ellison, 43, followed his US$8 billion August takeover of Paramount, the owner of CBS and MTV.
Studios like Paramount and Warner have been under pressure to combine, hurt by declining revenue from traditional media services like cable television and movie theatres. After spending heavily to build up streaming services, studios have cut production and jobs to push those newer operations to profitability.
Warner Bros said in October it was considering all of its options after receiving unsolicited interest from multiple parties. Paramount, Netflix and Comcast Corp were among the bidders interested in acquiring all or part of Warner Bros.
The bidding got contentious, with Paramount accusing Warner Bros of running an auction that favoured Netflix. Some Warner Bros shareholders including Pentwater Capital Management and Ancora Holdings had publicly advocated for the company to re-engage in talks with Paramount.
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