Paramount Skydance emerged as the winner of a months-long battle to acquire Warner Bros. Discovery on Thursday after streaming giant Netflix refused to raise its bid for the storied Hollywood studio.
Netflix said in a statement: “We remain disciplined and decline to match Paramount Skydance’s bid as this transaction is no longer financially attractive at the price required to match Paramount Skydance’s latest offer.”
Netflix confirmed to Reuters that it was withdrawing from its bid for Warner Bros. Discovery. Warner Bros.’ board still needs to terminate its deal with Netflix and adopt Paramount Skydance’s proposal.
“If our board of directors votes to adopt the Paramount merger agreement, it will create significant value for our stockholders,” Warner CEO David Zaslav said in a statement. “We are excited about the potential of combining Paramount Skydance and Warner Bros. Discovery and can’t wait to start working together to tell stories that move the world.”
Paramount continued to doggedly pursue Warner Bros., launching a hostile campaign to wrest the award from Netflix. Last week, it succeeded in bringing Warner Bros. back to the negotiating table, potentially increasing its cash offer to the company.
Warner Bros. said on the same day that Paramount’s revised offer of $31 per share for Warner Bros.’ streaming and studio assets was superior to Netflix’s offer of $27.75 per share.
An adviser to Netflix said on condition of anonymity that the deal no longer made economic sense and recommended the streaming service withdraw from the bid. Netflix co-CEO Ted Sarandos hinted that the streaming giant would not significantly increase its offer in an interview with Fox News’ Liz Claman on February 20, where he emphasized that Netflix is a “very disciplined buyer.”
The adviser said Netflix was bidding against a billionaire who had indicated he was willing to pay Warner Bros. a price that Netflix deemed unreasonable.
“There’s no point in playing chicken with someone who can’t handle it,” the source said, referring to billionaire Larry Ellison, Oracle’s co-founder, executive chairman and chief technology officer and father of Paramount CEO David Ellison.
Netflix’s stock price rose more than 10% after the company rejected the offer.
Regulatory concerns
The Paramount-Warner Bros. merger will combine two major Hollywood studios, two streaming platforms (HBO Max and Paramount+), and two news operations (CNN and CBS).
The Ellisons have ties to President Donald Trump. Still, the bid is likely to face antitrust scrutiny in Washington, foreign countries and U.S. states, including California.
“Given the political environment, federal regulatory approval is likely, but we believe it is very likely that some state regulators, particularly California Attorney General Rob Bonta, will seek to challenge the agreement. We believe European regulators may also have a say,” TD Cowen analysts said in a note.
Bonta, a Democrat, said late Thursday that this does not mean the deal is done. “These two Hollywood titans have not cleared regulatory scrutiny. The California Department of Justice is conducting an open investigation, and we will pursue it vigorously,” he added.
States have the power to sue to block a deal, but the greatest resources for doing so lie with the Department of Justice.
Democratic Sens. Elizabeth Warren, Bernie Sanders and Richard Blumenthal are concerned that approval of the deal could be tainted by political favoritism.
In its revised bid, Paramount increased the termination fee it would pay from $5.8 billion to $7 billion if the deal does not receive regulatory approval. It also agreed to cover the $2.8 billion in fees owed to Netflix after Warner Bros. withdrew from the merger agreement.
The Ellison Trust, backed by Larry Ellison, will inject $45.7 billion in capital, up from $43.6 billion previously, and Ellison has also agreed to provide additional funding needed to meet Paramount’s bank solvency requirements, the company said.
Bank of America Merrill Lynch, Citi and Apollo are providing $57.5 billion in debt financing, an increase from the original $54 billion commitment.
Activist investor Ancora Holdings, which has a small stake in Warner Bros. and has been pressuring the HBO owner to increase its involvement with Paramount, welcomed the latest offer.
“Netflix’s decision not to increase its offer of $27.75, with a low likelihood of a net debt adjustment, clears the way for shareholders to meaningfully receive more cash and creates a truly viable path to government approval,” Ancora said in a statement. “This is a win-win for shareholders and the industry.”
(Reporting by Aditya Soni, Akash Sriram, Jaspreet Singh and Sneha SK in Bengaluru and Dawn Chmielewski in Los Angeles; Editing by Shinjini Ganguly and David Gregorio)
