Streaming Wars Escalate As Netflix Makes $82.7 Billion All-Cash Bid For Warner Bros, Shuts Out Paramount

Netflix has abandoned the offer to buy the studio and streaming assets of Warner Bros Discovery in cash but without inflating the cost of the acquisition to the current price of 82.7 billion in an attempt to close the door to the rival activities of Paramount to acquire the Hollywood powerhouse.

The new all-cash offer at 27.75 a share has unanimous approval on the owner board of HBO, according to a Tuesday filing with the regulators.

Both Netflix NFLX.O and Paramount Skydance PSKY.O envy the Warner Bros WBD.O with its film and television industry leaders, a wide range of content and its megahits like Game of Thrones, Harry Potter and DC Comics superheroes Batman and Superman.

Paramount has changed its terms and has made an aggressive media campaign in an attempt to persuade shareholder that its bid is better, but Warner Bros has rejected the David Ellison-led company.

Netflix co-CEO Ted Sarandos said in a statement that the adjusted all-cash deal will allow a faster timeline to a stockholder vote and will give the company more certainty on the financial front.

Stocks of Netflix, which is to announce quarterly earnings following the close of the market, were up 1.2 percent before the bell. Paramount stock was falling 1 percent and Warner Bros was remaining relatively stagnant.

Prior cash and stock bid replaced

Netflix shares have fallen almost 15% since announcing the merger on December 5, closing at $88 per share on Friday – well below the $97.91 floor price of the original bid. That drop was part of Paramount’s argument that its bid was superior.

The new $27.75-per-share offer from Netflix replaces its earlier cash-and-stock bid for $23.25 in cash and $4.50 in Netflix stock.

“The merger consideration is a fixed cash amount to be paid by an investment-grade company, providing (Warner Bros) stockholders with certainty of value and liquidity immediately upon closing the merger,” Warner Bros said.

The company’s board also disclosed its valuation for Discovery Global, a planned spin-off that will contain television assets including CNN and TNT Sports and the Discovery+ streaming service.

The board has maintained that the Netflix merger deal is superior to Paramount Skydance’s PSKY $30-per-share cash bid for the company because Warner Bros’ investors would retain a stake in the separately traded Discovery Global.

Warner Bros’ advisers used three separate approaches for valuing Discovery Global. The lowest share price they arrived at was $1.33 per share, by applying a single value across the whole company. The high end of the range they determined was a price of $6.86 a share, if the spin-off became involved in a future deal.

Paramount has said the cable spinoff central to the streaming giant’s offer is effectively worthless.

PARAMOUNT TENDER EXPIRES JAN 21

The rival bidder went to court on January 12 to expedite the disclosure of this information, so investors could evaluate the competing offers for Warner Bros. A Delaware court judge rejected the request, finding that Paramount had failed to demonstrate it would suffer irreparable harm from the alleged inadequate disclosures about Warner Bros’ cable TV business.

Paramount Skydance, whose tender offer expires on January 21, did not immediately respond to a Reuters request for comment.

“Paramount will make another appeal to shareholders. Unless Paramount raises its bid, the appeal will be window dressing,” Emarketer analyst Ross Benes said.

The race is expected to come to a head at a shareholder vote later this year as Warner investors weigh the value of cable assets.

Warner Bros reiterated its reasons for rejecting the Paramount bid, saying its all-cash offer of $30 a share was insufficient after factoring in the “price and numerous risks, costs and uncertainties.”

A merger with Netflix would leave the combined company with roughly $85 billion in debt, compared with $87 billion for Paramount. But Netflix is worth considerably more, with a market valuation of $402 billion, compared with $12.6 billion for Paramount.

The Netflix tie-up would be less leveraged – carrying a leverage ratio of under four – than a ratio of about seven with Paramount.

Netflix also agreed to allow Warner Bros to reduce the amount of indebtedness to be borne by Discovery Global by $260 million, according to the regulatory filing.

Netflix also has an investment-grade credit rating, whereas Paramount’s bonds are rated at junk levels by S&P and would likely come under further pressure, Warner Bros said in its filing.

Winning over shareholders approval however may only be the first step in what could be a long process, given lawmakers across ⁠the political spectrum have ​voiced concerns that further media consolidation could drive up prices and reduce consumer choice.

The Ellisons have argued that their relationship with President Donald Trump gives them an easier regulatory path to approval.

(With inputs from Reuters)

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