Escalating Bidding War: Paramount’s Revised Offer for Warner Bros

On February 24, Paramount Skydance made headlines by submitting a revised offer to acquire Warner Bros. Discovery. This move comes as CBS's parent company seeks to thwart Netflix's attempt to secure the Hollywood studio.

The new offer surpasses Paramount's earlier bid of $30 per share in cash, totaling approximately $108.4 billion when factoring in debt. However, specific details about this new proposal remain undisclosed.

Paramount's renewed interest follows a week of negotiations aimed at addressing the concerns raised by Warner's board regarding prior offers, which they ultimately rejected in favor of Netflix's proposal at $27.75 per share, valued at $82.7 billion.

In a statement, Warner Bros acknowledged that the Netflix merger agreement is still valid and the board continues to endorse the Netflix deal.

Paramount's latest bid follows discussions with Warner's board, which received a waiver under its merger agreement with Netflix to explore alternative offers. Notably, Netflix retains the right to match any superior proposal.

In midday trading, Netflix shares rose by 2%, while Warner Bros increased by 0.8%, and Paramount experienced a slight decline.

Analysts from MoffettNathanson suggested that an offer around $34 per share from Paramount could conclude the bidding war and clarify Discovery Global's value.

Netflix's bid pertains to Warner Bros' film and television assets, alongside its extensive content library and HBO Max streaming service, excluding Warner's cable networks, which will be separated into a distinct entity, Discovery Global.

Warner's board estimates that Discovery Global could garner between $1.33 and $6.86 per share, which could enhance shareholder returns beyond Paramount's initial $30 offer.

If Warner Bros finds Paramount's latest bid more appealing than Netflix's, the streaming giant would have four days to respond and match the new offer as per the agreement established last December.

This high-stakes contest for one of Hollywood's most prestigious studios involves a potential shift in the industry's power dynamics, with ownership of valuable franchises like 'Game of Thrones', 'Harry Potter', and DC Comics at stake.

With substantial cash reserves, Netflix is well-positioned to increase its offer for Warner Bros, arguing that its acquisition plan presents better value to investors through the spin-off of Warner's cable assets.

In contrast, Paramount, led by CEO David Ellison, contends that it has a clearer path to regulatory approval in the U.S. In a bid to reassure investors, Paramount has offered to cover the $2.8 billion break-up fee Warner Bros would incur if the deal with Netflix fails, alongside an additional $650 million in cash for every quarter the agreement remains incomplete this year.

Paramount is intensifying its pressure on Warner Bros, actively engaging with Warner investors to oppose the Netflix deal ahead of the upcoming special meeting.

Additionally, if Warner Bros declines the new bid, Paramount has indicated its readiness to challenge the board at the next annual meeting, potentially nominating an influential director candidate from Pentwater Capital Management, a significant Warner Bros shareholder.

Furthermore, activist investor Ancora Holdings, which holds a minor stake in Warner Bros, has increased pressure by claiming the company has not sufficiently engaged with Paramount.

A shareholder vote regarding the Netflix deal is scheduled for March 20, marking a critical moment in this unfolding corporate drama.