UPDATED: 5:56 p.m. ET: Netflix has declined to match Paramount-Skydance’s sweetened offer to acquire Warner Bros. Discovery and is pulling out of contention to purchase the studio.
“The transaction we negotiated would have created shareholder value with a clear path to regulatory approval. However, we’ve always been disciplined, and at the price required to match Paramount Skydance’s latest offer, the deal is no longer financially attractive, so we are declining to match the Paramount Skydance bid,” CEOs Ted Sarandos and Greg Peters said in a statement. “Warner Bros. is a world-class organization, and we want to thank David Zaslav, Gunnar Wiedenfels, Bruce Campbell, Brad Singer and the WBD Board for running a fair and rigorous process. We believe we would have been strong stewards of Warner Bros.’ iconic brands, and that our deal would have strengthened the entertainment industry and preserved and created more production jobs in the U.S. But this transaction was always a ‘nice to have’ at the right price, not a ‘must have’ at any price.”
They continued: “Netflix’s business is healthy, strong and growing organically, powered by our slate and best-in-class streaming service. This year, we’ll invest approximately $20 billion in quality films and series and will expand our entertaining offering. Consistent with our capital allocation policy, we’ll also resume our share repurchase program. We will continue to do what we’ve done for more than 20 years as a public company: delight our members, profitably grow our business, and drive long-term shareholder value.”
UPDATED, February 26: Warner Bros. Discovery now said that after a review, it has determined Paramount has made a “Company Superior Proposal” than what Netflix is offering to buy the company, triggering a period of four business days in which Netflix can choose to match.
The ball is now in Netflix’s court to either beat Paramount’s offer or walk away from the table. If it doesn’t choose to match, Warner Bros. Discovery can terminate it’s deal with Netflix — triggering a massive fee payable to Netflix Paramount has offered to cover. For now though, WBD hasn’t changed it’s current recommendation to shareholders and the Netflix merger deal with WBD is still in effect.
“We are pleased WBD’s Board has unanimously affirmed the superior value of our offer, which delivers to WBD shareholders superior value, certainty and speed to closing,” David Ellison, Chairman and CEO of Paramount, said in a statement.
As Paramount revealed earlier this week, part of its sweetened offer also includes a financing cost for WBD’s debt and a “Company Material Adverse Effect” that could mitigate the risk of the cable channels being worth less than expected, in addition to a termination fee, a ticking fee to make sure the deal closes timely, and the termination fee WBD would have to pay to Netflix. Paramount also disclosed that the Ellison Trust is providing a $45.7 billion equity commitment, with Larry Ellison guaranteeing that amount, and contribute additional equity funding to Paramount to support the solvency certificate required by Paramount’s lending banks, and Bank of America Merrill Lynch, Citi, and Apollo are providing a $57.5 billion debt commitment.
Netflix’s most recent offer is $27.75 per share, also in cash, for just the film and TV studio, not the linear networks. It’s a roughly $82.7 billion offer.
Warner Bros. Discovery reported its Q4 and full year earnings on Thursday, February 26, and it revealed that it has 131.6 million global subscribers across HBO Max, linear HBO, and Discovery+, and it had earnings of $9.5 billion that exceeded Wall Street estimates for the quarter.
Our original story from February 24 follows: Warner Bros. Discovery announced that it has reviewed Paramount Skydance’s latest acquisition offer and determined that its proposal “could reasonably be expected to lead to a ‘Company Superior Proposal.’”
The board however has not determined whether PSKY’s offer is superior to its deal with Netflix for a merger, and for now the board has not changed its recommendation to shareholders to vote in favor of the Netflix deal.
If the WBD board determines PSKY has the better offer, Netflix has four business days to negotiate with WBD and match the offer.
Paramount’s latest offer, as detailed by WBD, includes a purchase price of $31 per share in cash, a fee of $.25 per share for each quarter the deal doesn’t close after September 30, a $7 billion termination fee if it gets blocked by regulators, and an additional $2.8 billion termination fee that WBD would have to pay to Netflix to nix their deal.
Paramount is aiming to buy the entirety of Warner Bros. Discovery, while Netflix is offering to buy just the film and TV studios, leaving behind the cable channels, which are set to be spun off into a separate company later this year.
This latest offer came about after Netflix agreed to give Paramount a 7-day window to put forward what it hoped would be the company’s “best and final” offer and provide some clarity to shareholders amid what has been an ugly proxy fight that will culminate with a shareholder vote on March 20. PSKY though previously said it does not consider this to be the “best and final” offer.
For Paramount, this is the ninth offer to purchase Warner Bros. Discovery, and to date WBD has not felt PSKY has produced a superior offer to Netflix ever since it announced a deal with Netflix back in December. WBD had said the PSKY offers had “deficiencies” that needed to be resolved, including Larry Ellison, one of the richest men in the world, personally guaranteeing the financing, as well as other concerns about the consortium of investors that also included dollars from Saudi Arabia.
Netflix has also argued that Paramount has made a lot of noise over the last few months in an attempt to win back the rights to WBD and accused it of spreading misinformation about Netflix’s ability to close a deal with the Department of Justice. What’s more, analysts have felt Netflix has had the superior offer because Netflix’s purchase price for just the film and TV studio combined with the value shareholders would get from the cable channels was still greater than the overall purchase price PSKY was offering. We’ll see now if those scales have in fact tipped in PSKY’s favor.
Industry professionals around Hollywood have expressed reservations regardless of whom ends up winning WBD. In the case of Netflix, the fear is that it would severely damage the theatrical business if Netflix doesn’t commit to releasing Warner Bros. movies in theaters any longer. But Netflix brass have aggressively done the rounds of late to say that it would commit to a 45-day theatrical window and that the model of release of WB films wouldn’t change. On the Paramount side, CEO David Ellison has envisioned billions of dollars in cost-cutting at WBD, and that could mean enormous layoffs and potentially fewer movies in the marketplace in the long term.
