Warner Bros. Says Paramount's Offer is Superior, Netflix Given Four Days
The competition to acquire Warner Bros. Discovery (WBD) has reached a critical stage. The company stated that the revised offer from Paramount Skydance, valued at $31 per share, is superior to the agreement already signed with Netflix.
According to Reuters, this statement automatically triggers a clause in the Netflix merger agreement, giving the streaming company four business days to submit a counter-offer or withdraw from the competition.
In its disclosure, WBD stated that the four-day period begins after the announcement of Paramount’s latest proposal. If, after this period, the Board of Directors still considers Paramount’s offer to be superior, WBD may terminate the merger agreement with Netflix.
However, WBD affirmed that the merger agreement with Netflix remains in effect and the board still recommends the transaction to shareholders.
Previously, in December, Netflix agreed to pay $27.75 per share to acquire WBD’s studio and streaming business. The agreement also includes a plan to spin off WBD’s cable assets into a separate entity called Discovery Global.
The valuation of Discovery Global is one of the main points of contention. WBD estimates that the entity is worth between $1.33 and $6.86 per share. In contrast, Paramount values it at almost nothing.
In its revised proposal, Paramount also increased the termination fee to $7 billion if the transaction fails to obtain regulatory approval, up from $5.8 billion previously.
From a funding perspective, Ellison Trust has committed to providing equity of $45.7 billion, supported by Larry Ellison, including additional funds needed to meet Paramount’s banking solvency requirements.
Meanwhile, Bank of America Merrill Lynch, Citi, and Apollo are preparing debt financing of $57.5 billion.
Netflix itself has cash and cash equivalents of approximately $9.03 billion at the end of December, so it is considered to have the financial capacity to increase its offer.
Paramount argues that it has a clearer path to obtaining regulatory approval in the United States compared to Netflix. The company has even indicated that it is prepared to challenge the board’s composition at the annual meeting if its offer is rejected.
Pressure is also coming from activist investors. Ancora Holdings, which holds a small stake in WBD, believes that the company did not adequately involve Paramount in the negotiation process. Pentwater Capital Management CEO Matthew Halbower also stated that one of the director candidates proposed by Paramount could come from among WBD’s major shareholders.
WBD previously stated that the board of directors has a track record of acting in the best interests of the company and shareholders.