Paramount’s Bold Offer for Warner Bros. Discovery

On Monday, Paramount took its fight for Warner Bros. Discovery straight to the shareholders, proposing an all-cash tender offer of $30 per share. This move comes just days after Warner entered into a deal with Netflix.

The hostile bid values Warner at approximately $108.4 billion, showcasing a staggering 139 percent premium compared to Warner’s stock price of $12.54 on September 10, before speculation of a takeover began. Paramount argues that its offer presents an additional $18 billion in cash to shareholders compared to Netflix’s bid.

Breitbart Business Digest pointed out last Friday that Paramount was contemplating a hostile takeover, indicating the seriousness of their intentions.

This situation could spur a battle for control over Warner’s prized assets, including HBO, CNN, and popular franchises like Harry Potter and DC Comics. Shareholders must decide whether to accept the offer by January 8 if the deadline isn’t extended.

Just last Friday, Warner Bros. Discovery agreed to a $72 billion arrangement with Netflix, where the streaming giant would acquire Warner Studios and HBO Max for $27.75 per share in cash and stock, following a split of Warner. Netflix has included a hefty $5.8 billion breakup fee in this deal, marking it as one of the largest in history. Paramount aims to acquire Warner as an entirety, which includes its Global Networks division that encompasses CNN, TBS, and HGTV. They criticized Warner’s board for pursuing an inferior deal that risks leaving shareholders with stakes in a heavily leveraged cable network with uncertain future values.

David Ellison, Chairman and CEO of Paramount, mentioned that they submitted six proposals over a span of 12 weeks, but Warner didn’t engage meaningfully. The bidding will be backed by $54 billion in debt commitments from institutions like Bank of America, Citi, and Apollo, along with equity supported by the Ellison family and Redbird Capital.

This confrontational strategy is quite audacious, especially since Paramount’s market value sits at about $14 billion, while Netflix’s valuation exceeds $400 billion. Surprisingly, Paramount’s shares dipped nearly 10% upon news of the Netflix deal, which is unusual for a company that generally sidesteps hefty acquisition expenses.

Paramount has raised concerns regarding the Netflix deal on both financial and regulatory fronts. They assert that even though the deal would boost competition, it risks creating a streaming monopoly that would control 43% of the world’s subscription video-on-demand users. In some European Union countries, it merges the top streaming player with its second- or third-largest competitor.

President Trump mentioned Sunday night that the Netflix deal could face challenges due to its potential to grant the streaming company an excessive market share, revealing his desire to be involved in the decision-making process.

If Paramount prevails, the renowned Warner Studios and CNN could join the expanding media empire of David Ellison and his father, Larry Ellison, who co-founded Oracle and is known to be close to Trump. The Ellisons are anticipated to take on significant roles in TikTok’s U.S. operations due to a preliminary agreement facilitated by the president.

Paramount has laid out a vision to keep both studios operational, increase theatrical releases, and merge Paramount+ with HBO Max to enhance competition against Netflix, Amazon, and Disney. This combined entity would encompass an impressive sports rights portfolio, including NFL, Olympic events, UFC, and major college sports, with expectations of generating over $6 billion in cost synergies.

As of last Friday, Warner’s stock closed at $26.08, below Netflix’s offering price, which hints at market skepticism about the deal’s completion. In premarket trading on Monday, shares of both Paramount and Warner saw an uptick, while Netflix’s stock remained mostly unchanged.

If Warner decides to walk away from its agreement with Netflix in favor of another offer, it would incur a $2.8 billion fee under their agreement. Netflix co-CEO Ted Sarandos expressed strong confidence in receiving the necessary regulatory approvals.

High bids in mergers and acquisitions are relatively uncommon once a deal is on the table, but they do happen, especially with valuable assets at stake. A recent example includes the weight loss drug startup Metsala, which sparked a bidding war that included an unsolicited bid from Novo Nordisk before Pfizer ultimately secured the deal.

Harris Associates and Sessa Capital rank among the largest shareholders of Warner. Paramount’s tender offer has received unanimous approval from its Board of Directors, and the company has initiated a pre-merger filing under the Hart-Scott-Rodino Antitrust Act.

This deal with Netflix represents a significant strategic shift for the streaming service, which has typically relied on organic growth over acquisitions. Prior to this, the largest deal was around $680 million.

Warner has concluded that Netflix’s lower per-share offer could actually equate to $31 to $32 per share for shareholders who will still own shares in both companies after the Warner Discovery split. Paramount has contested this reasoning, deeming it unsupported by solid business foundations.