Warner Bros still evaluating offers from Paramount and Netflix

Warner Bros Discovery is briefly reopening takeover talks with Skydance owned Paramount to hear the company’s “best and final” offer, while the Hollywood giant continues to back the studio and streaming deal it struck with Netflix.

In a Tuesday regulatory filing, Warner said it had received a waiver from Netflix to reopen talks with Paramount for the next seven days, or until Monday. Warner said this will allow the companies to discuss unresolved “deficiencies” and “clarify certain terms” of Paramount’s latest bid.

But in the meantime, Warner’s board is still recommending shareholders support its proposed merger with Netflix. A special meeting is now scheduled for Friday, 20 March to hold a vote on that deal.

In a statement, Netflix said it was confident that its proposed transaction “provides superior value and certainty” – but recognised “the ongoing distraction for WBD stockholders and the broader entertainment industry caused by PSKY’s antics”. The streaming giant noted it had granted Warner a seven day waiver to “finally resolve this matter”.

Warner’s leadership similarly reiterated its support for the Netflix deal.

Meanwhile, Paramount called Tuesday’s actions from Warner’s board “unusual” and said the company could have determined whether Paramount’s offer was superior without a timed deadline. Still, Paramount said it was “nonetheless prepared to engage in good faith and constructive discussions”.

Paramount added that it will continue to advance its tender offer priced at US$30 per share, which it maintained was better than Netflix’s proposal, while also pursuing a proxy fight.

The battle for Warner Bros. Discovery is complicated because Netflix and Paramount want different things. In December, Netflix agreed to buy Warner’s studio and streaming business for US$72 billion, now in an all cash transaction that would cover its legacy TV and movie production arms, as well as HBO Max. Including debt, the enterprise value of the deal is about US$83 billion, or US$27.75 per share, and would be finalised after Warner completes a previously announced separation of its cable operations.

Meanwhile, unlike Netflix, Paramount wants to acquire Warner’s entire company – including networks like CNN and Discovery – and went straight to shareholders with an all cash, US$77.9 billion hostile offer just days after the Netflix deal was announced.

The enterprise value of Paramount’s bid currently stands around US$108 billion including debt, or US$30 per share. But Warner disclosed Tuesday that a Paramount representative separately informed the company it would up its offer to US$31 per share “pending engagement.”

Analysts at Raymond James said they had “long believed” Paramount was willing to raise its offer “and now it seems we are finally moving in that direction.” If Paramount were to up its price to US$32 or US$33 per share, they noted it would be “increasingly difficult to argue the Netflix agreement is superior,” although Netflix could then move to match the bid.

IN THE DRIVER’S SEAT

“Netflix is still in the driver’s seat, but now having to make its case,” the analysts added in a Tuesday research note.

Paramount has made more attempts to sweeten its offer recently. Last week, the company said it would pay Warner shareholders an added “ticking fee” if its deal does not go through by the end of the year – amounting to US$0.25 per share, or a total of US$650 million, for every quarter after 31 December. Paramount also pledged to fund Warner’s proposed US$2.8 billion breakup payout to Netflix under its merger agreement.

The company has been scrambling to solidify more shareholder support. Paramount has extended its tender offer three times, with the latest deadline set for 2 March. According to company disclosures, more than 42.3 million Warner shares had been “validly tendered and not withdrawn” from its hostile bid as of the start of last week, down from over 168.5 million Warner shares on 21 January – still a small fraction of Warner’s 2.48 billion shares outstanding in series A common stock.

But also last week, one activist investor, Ancora Holdings, publicly expressed opposition to Warner’s proposed merger with Netflix. And beyond its tender offer, Paramount has also promised a proxy fight. On Tuesday, the company reiterated plans to nominate its own slate of directors at Warner’s upcoming annual meeting.

What, if anything, changes after the next seven days of talks has yet to be seen. Paramount, Warner and Netflix have spent the last couple of months in a heated back and forth over who has a stronger deal on the table.

The prospect of a Warner sale to either company has raised tremendous antitrust concerns from lawmakers worldwide, who are calling on regulators to carefully scrutinise a merger of this size.

The US Department of Justice has already initiated its reviews, and other countries may also scrutinise either deal. Both Paramount and Netflix have said they received securities clearance from German authorities last month.

Shares of Warner Bros. Discovery rose more than 3.0 per cent in Tuesday trading. Paramount Skydance climbed over 5.0 per cent, while Netflix’s stock inched up slightly.

AP