Warner Bros. Discovery is formally requesting Paramount’s “most definitive and highest offering price” concerning the media conglomerate, opening a short duration for negotiations on a potential acquisition while concurrently proceeding with its planned merger with Netflix and advising its investors to dismiss Paramount’s current unwelcome overture.
If that sounds intricate, it is.
Warner Bros. Discovery, or WBD for brevity, commands a valuation in the tens of billions, and its directorial body aims to extract the absolute maximum possible monetary value from all interested parties.
Consequently, on Tuesday morning, WBD announced it was resuming discussions with Paramount, seeking an elevated purchase price, yet acknowledging its awareness that Netflix possesses the capability—and likely intention—to meet that revised valuation.
Then, by Tuesday afternoon, Paramount expressed its readiness to engage in “sincere and productive deliberations.”
Netflix, on its part, harshly criticized Paramount on Tuesday, asserting that Paramount’s “financial instability and swift debt reduction strategies introduce considerable peril to the entire entertainment sector.”
Back in December, WBD reached an agreement to divest the majority of its holdings, which includes the famed Warner Bros. film studio and HBO, to Netflix. WBD’s assortment of cable networks, such as CNN, are excluded from this sale.
This arrangement with Netflix served as an indirect rejection of Paramount’s prior interest. However, Paramount CEO David Ellison countered by directly approaching WBD shareholders with an offer of $30 for every share of WBD, encompassing all assets, including CNN.
This is precisely the proposal WBD is officially resisting. On Tuesday morning, WBD declared it would summon a special shareholder meeting for March 20th and would advocate for the approval of the Netflix deal, which values the studio and streaming components at $27.75 per share.
WBD has maintained that the sale to Netflix, coupled with the formation of Discovery Global—a new entity to house the cable assets—represents the optimal avenue for investors, simultaneously characterizing Paramount’s bid as excessively precarious and akin to a leveraged buyout scenario.
However, a significant uncertainty remains: What precisely constitutes Paramount’s “best and final” monetary proposal?
In the jargon of deal-making, this signifies the ceiling of what a purchaser is prepared to commit, and Paramount has yet to disclose this figure.
During the previous bidding competition for WBD last year, Paramount alluded to a willingness to commit more than $30 per share. Last week, WBD reported that an individual acting on Paramount’s behalf informed a member of the Warner board that Paramount would agree to $31 per share should the parties enter into direct merger discussions.
That individual introduced some flexibility by hinting that the $31 figure was not necessarily the ultimate limit.
“We formally request your definitive and highest proposal,” WBD stated in a communiqué directed to Paramount’s board on Tuesday morning.
The remainder of this document, dense with financial terminology and legal phrasing, can be interpreted simply as: It is now time for concrete action or to withdraw from negotiations.
Paramount replied Tuesday afternoon, labeling the WBD board’s maneuver as “unconventional,” yet adding, “Paramount is nevertheless prepared to enter into honest and helpful discussions.”
“Simultaneously, we will press forward with our tender offer, sustain our campaign against the inferior Netflix merger, and proceed with our plan to nominate alternative directors at the forthcoming WBD annual gathering,” Paramount continued.
Paramount made minor conciliatory gestures toward WBD last week via a revised plan that modestly enhanced the terms of the takeover.
Engaging in dialogues with Paramount at this juncture could potentially unlock substantially greater capital for a corporation whose stock was valued barely above $10 a year prior, before the current acquisition discourse began.
“Throughout this entire process, our singular focus has been maximizing the worth and certainty for WBD shareholders,” WBD CEO David Zaslav affirmed in a Tuesday news release.
Referring to Paramount by its trading symbol, he commented, “At every juncture, we have provided PSKY with unambiguous guidance regarding the shortcomings in their proposals and opportunities for correction. We are now interacting with PSKY to ascertain if they can furnish a concrete, legally binding offer that delivers superior value and assurance to WBD shareholders through their ultimate, best price.”
Given that Paramount has already initiated legal proceedings concerning this merger fight, WBD’s latest formalized step could additionally be viewed as a legal preemptive measure.
Warner stressed on Tuesday that its board has not concluded that Paramount’s suggestion is “reasonably likely to result in a deal superior to the Netflix merger.”
However, since discussions are commencing, it is not entirely outside the realm of possibility either.
“Although we are confident that our arrangement delivers superior worth and certainty, we acknowledge the continual disruption for WBD stockholders and the wider entertainment community instigated by PSKY’s activities,” Netflix stated in a briefing Tuesday morning. “Consequently, we have granted WBD a constrained, seven-day exemption from specific covenants within our merger agreement to permit them to negotiate with PSKY to definitively conclude this affair.”
Netflix also accused Paramount of misleading WBD shareholders “regarding the genuine hazards associated with their regulatory hurdles globally;” criticized Paramount for “failing to meet its financial forecasts,” and asserted that a merger between Paramount and Warner would precipitate “corporate restructuring and job losses.”
Netflix also drew attention to the “external financing” underwriting Paramount’s bid, which originates substantially from the royal families of Saudi Arabia, Qatar, and Abu Dhabi.
That funding “is already sparking considerable national security concerns,” Netflix cautioned, anticipating intensive scrutiny from regulatory bodies across numerous nations.
As Rich Greenfield of Lightshed Partners recently observed, “the contest for Warner Bros. will undoubtedly serve as the subject for a brilliant ‘Succession’ spin-off series on Netflix” in the future.
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