David Ellison’s Paramount Skydance has a Monday deadline to submit its best and final offer for Warner Bros. Discovery, and Paramount is expected to come back with a better offer than its previous offer of $30 a share for WBD, hoping to outwit Netflix and win the deal.
Warner Bros. Discovery’s board of directors, with Netflix’s permission, has established a seven-day period to discuss an improved offer with Paramount. The discussion period will end at 11:59 pm ET on February 23rd, after teams from both companies worked over the weekend.
Paramount declined to comment on its next move. Sources told Variety that Paramount’s revised offer for Warner Bros. Discovery is likely to be $32 per share.
How will Netflix respond? After Paramount submits a revised proposal, the streamer has four days to either come back with a matching offer or exit the M&A drama.
In an interview with Variety’s Cynthia Littleton on Friday, Netflix co-CEO Ted Sarandos declined to say how the streamer would respond to Paramount’s big offer. But he said Netflix has a “rich history” of being “willing to walk away and have someone else pay the excess costs.”
“The next move is up to someone else. We have a deal with Warner Bros. Discovery,” Sarandos said in a Feb. 20 interview. “The Warner Bros. Discovery board has said that if someone wants to get a better deal that hasn’t happened yet, it hasn’t happened yet, but we’ll see what happens after that. But let’s not get ahead of that process. Besides, the bidding strategy anyway. I’m not going to comment on that, of course. But the core of it is, you know, we’re very disciplined buyers. As you probably know, I’m willing to step back and let someone else overpay for it.”
If Warner Bros. Discovery agrees to accept Paramount Skydance’s higher offer, WBD will pay a $2.8 billion penalty to Netflix. Paramount said in its latest proposal that it would cover the costs.
On February 17, WBD announced that it was in discussions with Paramount to “seek clarity” regarding its “best and final proposal.” Warner Bros. Discovery CEO David Zaslav and board chairman Samuel Di Piazza Jr. said in a letter to Paramount’s board that WBD is asking Paramount Skydance to “clarify your proposal, which we understand includes a price per share of WBD in excess of $31.”
The Warner Bros. Discovery board cited a communication from a “senior representative of PSKY” to certain WBD board members stating that if the WBD board approves the M&A discussions, Paramount “will agree to pay $31 per share and this offer is not PSKY’s ‘best and final’ offer.” WBD also set a March 20 special meeting date to vote on the Netflix deal, but said its board at the time still recommended investors vote in favor.
“The question is how far PSKY is willing to go and whether Netflix will exercise its matching rights and increase its offer,” Moffett Nathanson analyst Robert Fishman said in a Feb. 20 research note. “In short, we expect PSKY to go to at least $32 per share to put pressure back on its bid for NFLX into the $30 per share range.” He added that if Paramount Skydance “really wants to win a bidding war with NFLX, it will bid in the $34 per share range to avoid an ongoing debate over the value of Discovery’s global network.”
Under Netflix’s current deal with WBD, the streamer will acquire Warner Bros.’ studio and streaming business for $27.75 per share. WBD shareholders would retain a stake in the company’s proposed spinoff entity, Discovery Global, which operates CNN, TBS and other linear networks.
If Netflix raises its offer above $30 per share, “it would be difficult to make the accretion math work,” Fishman wrote. This factored in increased debt, “potential cannibalization of revenues, and necessary reductions in programming spending.”
“While we believe there are long-term benefits to owning Warner Bros., HBO, and HBO Max, we expect NFLX to follow a disciplined approach and exit the transaction if PSKY forces a bid significantly above $32 per share,” Moffett Nathanson analysts continued. “If PSKY decides to take a less aggressive approach during this exemption period, giving NFLX the opportunity to compete with a more modest increase from its current bid, we believe it will be difficult for PSKY to win a bidding war for WBD.”
Meanwhile, after saying earlier this month that he would not be involved in a review of Netflix’s deal with the World Bank, Donald Trump on Saturday called on Netflix to “immediately fire” director Susan Rice or “pay the consequences” in a social media post. Trump cited a tweet from far-right commentator Laura Loomer, who said Rice, who served as ambassador to the United Nations under Obama, was “threatening half the country with political retaliation by armed government.” Loomer also bizarrely claimed that if Netflix were allowed to acquire Warner Bros., “positive messages about the Democratic Party’s upcoming witch hunt against Trump by Barack Hussein Obama and his anti-white racist wife Michelle would likely be broadcast to all streaming services.”
On Monday, Sarandos addressed Trump’s comments. “He likes to do a lot of things on social media,” Sarandos told BBC Radio 4 in an interview. “This is a business deal. It’s not a political deal. This deal is being managed by the U.S. Department of Justice and regulators in Europe and around the world.”
In recent weeks, the Justice Department has expanded its review of the proposed deal between Netflix and the World Bank, investigating whether the combined company would violate antitrust laws regarding the entertainment programming market. The Justice Department’s antitrust division contacted independent studios asking whether Netflix’s acquisition of Warner Bros. “could materially reduce competition or tend to create a monopoly in violation of Section 7 of the Clayton Act or Section 2 of the Sherman Act,” according to a copy of the letter seen by Variety.
Netflix claims that it does not have anything close to monopoly control in any market. In a statement to Bloomberg about the Justice Department’s expanded investigation, Chief Counsel David Heyman said, “Netflix operates in a highly competitive market. Any claims that it is or is attempting to monopolize are baseless. We do not hold a monopoly or engage in exclusive behavior, and as always, we are happy to cooperate with regulators regarding any concerns they may have.”
On Friday, Paramount announced that its proposed acquisition of WBD cleared a Justice Department milestone following the expiration of the statutory waiting period for Paramount Skydance’s “Certification of Compliance” with the Department’s second request for information under the Hart-Scott-Rodino Antitrust Act. Netflix’s Mr. Hyman accused Paramount of continuing to “mislead shareholders and distract from the facts,” and said, “HSR’s periodic milestones do not indicate approval from the Department of Justice or that any decisions have been made.”
