Warner Bros. Pressures Paramount as Netflix Deal Looms

Key Moments

Acquisition Standoff Lifts WBD Shares

Shares of Warner Bros. Discovery rose about 2.7% on February 17. The gain followed a company update on its contested sale process. The statement clarified WBD’s position on rival offers from Netflix and Paramount Skydance.

WBD plans to begin talks with Paramount Skydance. Specifically, it will request the bidder’s “best and final offer.” At the same time, the board continues to recommend Netflix’s existing proposal.

As a result, investors expect the final acquisition price to increase. Competing bidders now face pressure to clarify and possibly improve their terms.

Netflix Waiver Opens Window for Paramount Skydance

Netflix granted WBD a seven-day waiver to negotiate with Paramount Skydance. The waiver runs through February 23. Therefore, WBD can engage with PSKY despite its signed agreement with Netflix.

According to the announcement, Netflix aims to accelerate the process. It wants PSKY to present its best terms within a clear deadline. Meanwhile, WBD shareholders will vote on the Netflix deal on March 20.

The tight timeline may benefit Netflix. Any competing offer must arrive early enough for review. In addition, Netflix retains the right to match improved proposals.

The waiver may also support regulatory approval. WBD can demonstrate it explored all credible options. Consequently, regulators may view the process more favorably.

Paramount Skydance Pricing Signals and Structural Concerns

Indicative Pricing Signals

WBD disclosed an indicative price from Paramount Skydance. The company shared the following statement:

“On February 11th, a senior representative of your financial advisor communicated orally to a member of our Board that PSKY would agree to pay $31 per WBD share if we engage with you, and that $31 is not PSKY’s best and final proposal.”

This communication suggests PSKY’s next offer will be at least $31 per share. That figure exceeds its prior $30 offer. Moreover, it falls within the $28 to $33 value range WBD estimates for the Netflix deal.

Break-Up Fee and Financing Risks

A major factor is the $2.8 billion break-up fee owed to Netflix. Paramount has indicated it would cover this cost. Therefore, one key obstacle to switching bids may be resolved.

However, WBD still has concerns. These include financing fees, operational control before closing, and funding certainty. Although Paramount’s offer is all cash, it relies heavily on debt financing.

If market conditions worsen, borrowing costs could rise. Funding commitments could also weaken. In that case, PSKY might renegotiate terms or withdraw.

To reduce this risk, WBD seeks stronger assurances. Specifically, it wants PSKY’s owners to cover any financing shortfall with their own capital.

Comparing Bid Structures and Potential Outcomes

WBD views Paramount Skydance’s proposal as more uncertain than Netflix’s. Even if PSKY offers a higher price, structural risks remain. As a result, the deal could change or collapse.

For shareholders, the situation presents both upside and protection. A stronger PSKY bid could raise WBD’s valuation. Additionally, competition may push Netflix to improve its offer.

Conversely, if PSKY fails to address key concerns, Netflix’s deal may prevail. In that case, it provides a valuation floor for the stock.