Warner Bros. Discovery might have to seriously consider Paramount Skydance’s recent acquisition proposal aimed at replacing its extensive agreement with Netflix. Interestingly, it’s not just the allure of the offer that’s driving this consideration.
The new details of Paramount’s $78 billion bid, revealed Tuesday, include a hefty $2.8 billion fee if WBD decides to break from Netflix, as well as a potentially costly “ticking fee” of 25 cents per share if there are delays with regulatory approvals. This fee would be paid quarterly after December 31 while the deal is still pending.
On the surface, the revamped proposal seems a bit complicated. WBD’s CEO, David Zaslav, hasn’t been able to match Paramount Skydance’s $3 per share increase, which is in addition to their own cash offer of $30 per share. Moreover, Zaslav has asked for a personal guarantee from Larry Ellison, the billionaire father of Paramount’s CEO, David Ellison, regarding the associated $50 billion debt.
However, just a few hours after Paramount’s new offer was made public, WBD issued a statement indicating it would “carefully consider the Paramount Skydance proposal” within the framework of its current agreement with Netflix.
This may sound like a standard response typically used to dismiss previous offers, but there’s more at play here. A significant hurdle for WBD is the increasing scrutiny from antitrust regulators in the U.S. and overseas towards Netflix. There are real concerns about Netflix’s plans to acquire Warner Bros. Studios and the HBO Max streaming service being successful.
As reported, Netflix’s entire business model is now facing questions under antitrust laws, which is a real shift in the landscape.
Just a few days ago, WBD was gearing up for a shareholder vote, with legal experts believing the proposal would likely receive approval. Shareholders seem hesitant to dismiss a Netflix acquisition, especially since the stock price has returned to around $12, similar to its value before the bidding war began.
There’s also a lack of clarity between Paramount’s cash offer of $30 per share and Netflix’s $27.75 bid, not to mention the future value of stock assets from WBD’s planned spinoff of its cable division.
Yet, the situation is rapidly evolving. Paramount’s offer comes with fewer regulatory complications, which partially explains the willingness to pay that ticking fee. Recent Senate Judiciary hearings have also put Netflix’s CEO, Ted Sarandos, in a tough spot amidst bipartisan criticism.
This entire scenario suggests that regulatory oversight is somewhat chaotic, adding to the uncertainty surrounding these deals.
Netflix’s chief legal officer stated that they operate in a highly competitive environment and rejected any claims of monopolistic practices, asserting their commitment to cooperating with regulators on any concerns.
WBD’s top external attorney also mentioned that they haven’t seen any signs of a focused investigation from the Justice Department.
Considering all these factors, WBD may feel justified in rejecting this latest Paramount Skydance offer along with others. Zaslav seems to have a more amicable approach with Sarandos compared to Ellison, and his demands remain unmet. A response from WBD is expected soon.
Nonetheless, insiders have indicated that due to the risks associated with the Netflix agreement, WBD executives are pondering what it would mean if Netflix had to back out. This could lead to WBD shareholders divesting their cable assets and reorganizing into a more streamlined company.
On the brighter side, much of WBD’s traditional debt could be alleviated through the cable spinoff, providing a financial boost. WBD could also see a significant influx of $5.8 billion from the separation fee Netflix would pay upon exit.
Unfortunately, this might not bode well for shareholders, as stock prices could take a considerable hit.
