David Ellison’s Paramount Skydance has a Monday deadline to submit its best and final offer for Warner Bros. Discovery — and Paramount is expected to come back with an offer above its previous $30/share bid for WBD, angling to outflank Netflix to win the deal.
The board of Warner Bros. Discovery, with the permission of Netflix, opened a seven-day window to talk with Paramount about an improved offer. That discussion period ends at 11:59 p.m. ET on Feb. 23, coming after teams from both companies worked over the weekend.
Paramount has declined to comment on its next move. Insiders tell Variety that Paramount’s revised offer for Warner Bros. Discovery will likely come in at $32/share.
How will Netflix respond? After Paramount submits a revised proposal, the streamer has four days to either come back with a matching offer — or exit the M&A drama.
Netflix co-CEO Ted Sarandos, in an interview Friday with Variety‘s Cynthia Littleton, declined to say how the streamer would respond to a higher offer from Paramount. But he did say that Netflix has a “rich history” of being “willing to walk away and let someone else overpay for things.”
“The next move is up to somebody else. We have a signed deal with Warner Bros. Discovery,” Sarandos said in the Feb. 20 interview. “If someone wants to make a better deal, which the Warner Bros. Discovery board has said has not happened yet, then we’ll see what happens down the road. But let’s not get ahead of that process. And I certainly wouldn’t comment on the bidding strategy anyway. But the core of it is, you know, we’re super-disciplined buyers, as you probably know we have a reputation for such so that I’m willing to walk away and let someone else overpay for things. We have a rich history of that.”
If Warner Bros. Discovery agrees to accept Paramount Skydance’s higher offer, WBD will be on the hook to pay a $2.8 billion breakup fee to Netflix. In its most recent proposed offer, Paramount has said it will foot the bill for that.
On Feb. 17, WBD said it was engaging in discussions with Paramount to “seek clarity” on its “best and final offer.” WBD wanted Paramount Skydance “to clarify your proposal, which we understand will include a WBD per share price higher than $31,” Warner Bros. Discovery CEO David Zaslav and board chairman Samuel Di Piazza Jr. wrote in a letter sent to Paramount’s board.
The Warner Bros. Discovery board cited a communication from a “senior representative for PSKY” to an identified WBD board member that if the WBD board authorized M&A talks, Paramount “would agree to pay $31 per share and that the offer was not PSKY’s ‘best and final’ proposal.” In addition, WBD set March 20 for the special meeting of shareholders to vote on the Netflix deal — which the board at the time said it still recommended that investors vote for.
“The question now becomes how high PSKY is willing to go — and whether Netflix will exercise its matching rights and increase its offer as well,” MoffettNathanson analyst Robert Fishman wrote in a Feb. 20 research note. “In short, we do expect PSKY to go to at least $32 per share to put the pressure back on NFLX to increase its bid likely to the $30 per share range.” He added that if Paramount Skydance “truly wants to win the bidding war with NFLX, we think it will take a bid in the range of $34 per share to avoid an ongoing debate over the value of Discovery’s Global Networks.”
Under Netflix’s current agreement with WBD, the streamer would buy Warner Bros.’s studios and streaming businesses for $27.75 per share. WBD shareholders would retain equity in Discovery Global, the company’s proposed spin-off entity house CNN, TBS and other linear networks.
If Netflix were to up its offer above $30/share, “we have difficulty making the accretion math work,” Fishman wrote. That’s factoring in incremental debt, “likely revenue cannibalization and necessary programming spend cuts needed.”
“While we see the longer-term benefits of owning Warner Bros., HBO and HBO Max, we expect NFLX to walk away from the deal following a disciplined approach if PSKY pushes its bid well beyond $32 per share,” the MoffettNathanson analyst continued. “We think it will be difficult for PSKY to win the bidding war for WBD if it decides to take a less aggressive approach during this waiver period, giving NFLX the opportunity to match at a more modest increase from its current bid.”
Meanwhile, Donald Trump — after earlier this month saying he would not be involved in the review of the Netflix-WB pact — in a social media post Saturday demanded that Netflix “immediately fire” board member Susan Rice or else “pay the consequences.” Trump cited a tweet by far-right commentator Laura Loomer, who said Rice, who served as U.N. ambassador under Obama, was “threatening half of the country with weaponized government political retribution.” Loomer also bizarrely claimed that if Netflix is allowed to acquire Warner Bros., “positive messaging of the Democrats’ upcoming witch hunts against Trump from Barack Hussein Obama and his anti-White racist wife Michelle would likely be blasted across all streaming services.”
On Monday, Sarandos addressed Trump’s comment. “He likes to do a lot of things on social media,” Sarandos said in a BBC Radio 4 interview. “This is a business deal. It’s not a political deal. This deal is run by the Department of Justice in the U.S. and regulators throughout Europe and around the world.”
The Justice Department in recent weeks has expanded its review of the proposed Netflix-WB agreement to examine whether the combined company would violate antitrust laws with respect to the market for entertainment programming. The DOJ’s Antitrust Division has sent inquiries to independent studios inquiring whether the Netflix acquisition of Warner Bros. “may substantially lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton Act or Section 2 of the Sherman Act,” according to a copy of one of the letters reviewed by Variety.
Netflix has argued that it does not have anything close to monopoly control over any market. In a statement to Bloomberg about the expanded DOJ probe, chief legal counsel David Hyman said, “Netflix operates in an extremely competitive market. Any claim that it is a monopolist, or seeking to monopolize, is unfounded. We neither hold monopoly power nor engage in exclusionary conduct and we’ll gladly cooperate, as we always do, with regulators on any concerns they may have.”
On Friday, Paramount said its proposed WBD takeover had cleared a milestone at the DOJ, after the expiration of the statutory waiting period following Paramount Skydance’s “certification of compliance” with the Justice Department’s second request for information under the Hart-Scott-Rodino antitrust act. Netflix’s Hyman accused Paramount of continuing to “mislead stockholders and distract from the facts,” saying that “routine HSR milestones do not signal DOJ approval nor that any decision has been made.”
