Warner Bros. Says Paramount’s Revised Proposal Could Be Considered Superior

Warner Bros. Discovery said Feb. 24 that Paramount and Skydance submitted a higher takeover bid after Netflix’s seven-day waiver expired—potentially topping the original deal.

“Following engagement with PSKY during the seven-day limited waiver period, we received a revised PSKY proposal to acquire WBD, which we are reviewing in consultation with our financial and legal advisors,” WBD said in a morning statement, without disclosing the new terms.

The century-old film and television studio later updated its statement, saying that Paramount had increased its purchase price to $31 per WBD share in cash. The company added that Paramount would also pay a daily ticking fee of $0.25 per share per quarter after Sept. 30, as well as a $7 billion termination fee if the transaction fails to close due to regulatory reasons.

Paramount also offered to pay the $2.8 billion termination fee that WBD would need to pay Netflix for exiting the existing merger agreement, the statement says.

WBD said its board has determined that Paramount’s updated proposal could “reasonably be expected to lead to a ‘Company Superior Proposal,’ as defined in WBD’s merger agreement with Netflix, Inc.”

Paramount also said it has submitted a revised offer and will continue pursuing its previously announced tender bid while the Warner Bros. board reviews both proposals.

Shortly after Netflix agreed to purchase Warner Bros.’s studio and streamlining assets for $82.7 billion in December, Paramount swooped in and offered to buy the entire company, including its linear cable networks and digital assets, for $30 per share—or about $108.4 billion.

Last week, Netflix agreed to a seven-day waiver so that the legacy media empire could seek clarity and receive its “best and final offer” from Paramount.

“We will update our shareholders following the Board’s review. The Netflix merger agreement remains in effect, and the Board continues to recommend in favor of the Netflix transaction,” Warner Bros. said. “WBD shareholders are advised not to take any action at this time with respect to the amended PSKY tender offer.”

The entertainment empire has scheduled a special meeting for March 20.

Netflix will have four days to enhance its offer if Warner Bros. determines Paramount’s bid is better.

In a Feb. 20 interview with Variety, Netflix co-CEO Ted Sarandos did not share plans as to how the company would respond to a higher offer from its industry rival. However, Sarandos noted that Netflix maintains a “rich history” of being “willing to walk away and let someone else overpay for things.”

“It’s probably cheaper to make noise than it is to raise your bid,” he said.

In addition, if Warner Bros. decides that Paramount’s takeover offer is superior and the streaming service does not update its bid, Netflix will receive a $2.8 billion breakup fee. Paramount has stated it would cover the costs.

A Paramount-Warner Bros. merger would bring various media brands under one roof. HBO Max would join Paramount+, while CNN and CBS News would be in the same company.

Wall Street Watch

Shares of Netflix and Paramount rose by about 1 percent following the announcement. The Warner Bros. stock ticked up 0.4 percent.

Despite the back-and-forth, the Warner Bros. board was commended for its efforts to achieve a higher valuation, says Chris Marangi, co-CIO of value at Gabelli Funds.

For Netflix shareholders, questions will be raised about whether it will respond and whether Paramount’s purchase of Warner Bros. makes it a “more formidable competitor,” Marangi said in a note emailed to The Epoch Times.

“[Netflix] stock may be dead money until those questions [are] answered (which could take time given regulatory review),” Marangi said.

Either way, there will be a “regulatory gauntlet,” and it remains to be seen whether either company makes concessions, he added.

Still, both mergers would require regulatory approval from both the United States and Europe. A chorus of analysts has cited a likely antitrust probe by the Department of Justice and heightened political scrutiny.

Prior to the update, Sanford C. Bernstein raised its price target for Warner Bros. to $27.75 from $23.50 while maintaining a “Market Perform” rating. The analyst consensus is a “Hold,” with an average price target of $25.30, according to MarketBeat.