Paramount Raises Offer for Warner Bros Discovery vs Netflix

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Paramount Boosts Offer in High-Stakes Bidding Contest

Paramount Skydance has put forward an upgraded offer for Warner Bros Discovery, escalating its effort to undercut the HBO Max owner’s agreement with Netflix, according to a source familiar with the situation who spoke to Reuters.

The contest for control of Warner Bros Discovery – which includes highly prized franchises such as “Harry Potter” and “Game of Thrones” – has sharpened competition for leadership in a market increasingly driven by streaming platforms.

Paramount’s latest proposal improves on its earlier bid of $108.4 billion, or $30 per share, for the entire company. The new terms are specifically designed to address Warner Bros’ worries over the reliability and structure of Paramount’s financing, the source said.

The precise changes to the new offer were not immediately clear. Warner Bros and Paramount declined to comment, and Netflix could not be reached for comment.

Competing Offers: Paramount vs. Netflix

Warner Bros currently favors Netflix as its chosen buyer. Netflix has proposed to acquire the studios and streaming businesses for $27.75 per share in cash, valuing the deal at $82.7 billion. Under the existing arrangements, Netflix is permitted to match Paramount’s latest bid, led by David Ellison.

A report from Variety published late on Monday indicated that Warner Bros is likely to examine the revised Paramount proposal while continuing to back the Netflix agreement in its recommendation to shareholders.

Netflix has significant cash resources and could increase its offer for the HBO Max operator. Paramount’s competing bid is supported by Oracle billionaire Larry Ellison.

The parent of CBS had previously been asked by Warner Bros to submit its “best and final offer” after an enhanced proposal was rejected. That earlier Paramount offer had included agreeing to cover a $2.8 billion termination fee owed to Netflix and adding a quarterly “ticking fee” of 25 cents per share, beginning next year, to compensate Warner Bros shareholders for any delay in closing the deal.

Warner Bros stated that Paramount’s February 10 proposal still did not reach the threshold the board would regard as a superior bid, and gave Paramount until February 23 – a seven-day deadline – to deliver a revised offer.

Valuation Debates and Discovery Global Spinoff

Analysts at MoffettNathanson had previously suggested that a Paramount offer in the vicinity of $34 per share would be sufficient to end the bidding battle and “avoid further debate over Discovery Global’s value.”

Warner Bros intends to separate its cable television assets – including CNN and HGTV – into a new entity called Discovery Global. The company has estimated that Discovery Global could be worth between $1.33 and $6.86 per share.

Netflix has argued that its offer provides Warner Bros shareholders with additional upside via the Discovery Global spinoff. Warner Bros maintains that the spin-off will enhance value by granting the new company increased strategic, operational, and financial flexibility.

Paramount, however, has characterized the cable spinoff that underpins Netflix’s proposal as effectively having no real value.

Shareholder Pressure and Activist Involvement

Warner Bros, led by CEO David Zaslav, has come under pressure from activist investor Ancora Capital. Ancora has amassed an approximately $200 million stake in the HBO parent and has criticized the company for what it sees as insufficient engagement with Paramount.

The investor has warned that if Warner Bros refuses to reopen talks with Paramount, it will vote against the Netflix deal and will hold the company’s board accountable at its annual shareholder meeting.

In extended trading, shares of Paramount rose 1.3% to $10.70.

Regulatory Challenges for Any Transaction

Warner Bros shareholders were scheduled to vote on Netflix’s proposal on March 20, a decision expected to be crucial in determining the outcome of the bidding contest for one of Hollywood’s most storied film studios.

Approval by shareholders would move the Netflix deal forward, but it would still be subject to intensive examination by competition regulators in the United States and Europe. Authorities must determine whether combining Netflix’s global streaming scale with Warner Bros’ extensive studio library would undermine competition or restrict consumer choice.

Lawmakers from both major political parties have expressed concern about the potential impact on consumers and creative professionals.

Paramount’s Regulatory Pitch vs. Netflix’s Scale

Paramount has said it has already obtained foreign-investment clearance in Germany and is in discussions with antitrust authorities in the U.S., the European Union, and the United Kingdom. The company has consistently asserted that it offers a more straightforward route to regulatory approval than Netflix.

According to Paramount, its bid would create a studio larger than current market leader Disney and combine two major television operators. Some Democratic senators have warned that such a merger would mean the combined entity would control “almost everything Americans watch on TV.”

The transaction would also transfer control of CNN to the Ellison family, who are described as conservative-leaning, following their acquisition of CBS News and appointment of Bari Weiss as editor-in-chief.

Strategic Rationale for Netflix

For Netflix, merging with HBO Max would position it as the largest global streaming platform, with around half a billion subscribers.

Netflix co-CEO Ted Sarandos has expressed confidence in securing regulatory consent, stating that the company’s proposal would be better for the Hollywood ecosystem because it would avert job cuts in an industry already affected by a reduced volume of productions and inconsistent box-office performance.

During negotiations, Netflix has argued that combining its service with HBO Max would lower costs for consumers by enabling a cheaper bundled streaming option.

However, Netflix’s claim that it needs Warner Bros to effectively compete with YouTube, described as America’s most-watched television distributor, is expected to encounter resistance from the U.S. Department of Justice.

Antitrust Scrutiny of Netflix

As part of its review of the proposed transaction, the Department of Justice is investigating whether Netflix has engaged in anti-competitive conduct.

Netflix has cited data from media measurement firm Nielsen indicating that Google’s YouTube accounts for more viewing time on U.S. televisions than any other streaming platform.

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