Paramount Skydance emerged as the winner in a months-long battle to acquire Warner Bros Discovery after streaming giant Netflix on Thursday refused to raise its bid for the storied Hollywood studio.
“We’ve always been disciplined, and at the price required to match Paramount Skydance’s latest offer, the deal is no longer financially attractive, so we are declining to match the Paramount Skydance bid,” Netflix said in a statement.
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Warner Bros Discovery, Paramount Skydance
(Photo: Valerie Macon/ AFP, Mario Tama/Getty Images)
Netflix confirmed to Reuters that it was walking away from bidding for Warner Bros Discovery. The Warner Bros board still must terminate the Netflix deal and adopt Paramount Skydance’s offer.
“Once our board votes to adopt the Paramount merger agreement, it will create tremendous value for our shareholders,” Warner CEO David Zaslav said in a statement. “We are excited about the potential of a combined Paramount Skydance and Warner Bros Discovery and can’t wait to get started working together telling the stories that move the world.”
Paramount maintained its pursuit of Warner Bros, launching a hostile campaign to wrest the prize from Netflix. It brought Warner back to the bargaining table last week with the prospect of an increased cash offer.
Earlier Thursday, Warner Bros said Paramount’s revised $31-a-share offer was superior to Netflix’s bid of $27.75 per share for Warner Bros’ streaming and studio assets.
A Netflix adviser, speaking on condition of anonymity, said the streaming service was advised to withdraw because the deal no longer made economic sense. Netflix co-CEO Ted Sarandos signaled in a February 20 interview with Fox News’ Liz Claman that the company would not substantially raise its offer, emphasizing that Netflix has been “very disciplined buyers.”
The adviser said Netflix was bidding against a billionaire willing to pay a price for Warner Bros that Netflix viewed as irrational.
“There’s no point in playing chicken with someone who won’t turn the wheel,” the source said, referring to billionaire Larry Ellison, co-founder, executive chairman and chief technology officer of Oracle and father of Paramount CEO David Ellison.
Netflix shares jumped more than 10% after it declined to raise its offer.
Regulatory concerns
A merger between Paramount and Warner Bros would unite two major Hollywood studios, two streaming platforms, HBO Max and Paramount+, and two news operations, CNN and CBS.
The Ellison family has ties to President Donald Trump. Still, the bid is likely to face antitrust scrutiny in Washington, abroad and in U.S. states including California.
“Approval from federal regulators seems likely given the political environment; however, we think it is very likely that some state regulators, most notably California Attorney General Rob Bonta, could attempt to challenge the deal. We think there is potential for European regulators to have a say as well,” TD Cowen analysts said in a note.
Bonta, a Democrat, said late Thursday that the deal is not done. “These two Hollywood titans have not cleared regulatory scrutiny — the California Department of Justice has an open investigation, and we intend to be vigorous in our review,” he said.
States have the power to sue to block deals, though the Justice Department has the most resources to do so.
Democratic Sens. Elizabeth Warren, Bernie Sanders and Richard Blumenthal have expressed concern that approval of the deal could be tainted by political favoritism.
In its revised bid, Paramount raised the termination fee it would pay if the deal fails to win regulatory approval to $7 billion from $5.8 billion. It also agreed to cover the $2.8 billion fee Warner Bros would owe Netflix for exiting the merger agreement.
The Ellison Trust is committing $45.7 billion in equity, up from $43.6 billion previously, backed by Larry Ellison, who also agreed to provide additional funds needed to satisfy Paramount’s bank solvency requirements, the company said.
Bank of America Merrill Lynch, Citi and Apollo are providing $57.5 billion in debt financing, increased from an earlier $54 billion commitment.
Activist investor Ancora Holdings, which owns a small stake in Warner Bros and had pressed the company to engage more with Paramount, welcomed the latest offer.
“Netflix’s decision not to raise its offer of $27.75, less likely net debt adjustments, has paved the way for shareholders to receive meaningfully more cash and a truly viable path to government approvals,” Ancora said in a statement. “This is a win-win for shareholders and the industry.”