On Thursday, February 26, Netflix made a statement refusing to raise its acquisition offer for Warner Brothers Discovery (WBD), allowing Paramount Skydance to emerge victorious in the high-profile Hollywood acquisition battle. The future of this closely watched Hollywood century-old merger seems to be settled, but it may face antitrust scrutiny from various states in the United States.
In an official statement, Netflix stated, “We have always adhered to financial discipline, and following Paramount Skydance’s latest offer, this deal will no longer be financially attractive, so we have decided to withdraw from the bidding.”
Netflix’s co-CEOs, Ted Sarandos and Greg Peters, also mentioned in a joint statement that they will not blindly raise their bid. They said, “The original deal we negotiated had a clear regulatory approval pathway and could create value for shareholders. If we simply follow the opponent’s offer, the deal will no longer be favorable.”
The board of Warner Brothers will formally terminate the agreement with Netflix and accept Paramount Skydance’s proposal. CEO David Zaslav responded to this by saying, “Netflix is a great company. Throughout the process, their management has been great partners, and we wish them all the best in the future. We are also very excited about the merger with Paramount Skydance.”
Last week, Paramount initiated a successful hostile takeover, forcing Warner Brothers back to the negotiation table and increasing the all-cash offer from $30 to $31 per share, surpassing Netflix’s original bid of $27.75 per share for Warner Bros. Studios and streaming assets.
It is worth noting that last week, Netflix granted Warner Brothers a “seven-day grace period” to renegotiate with Paramount. In contrast to Netflix’s targeted asset acquisitions, Paramount’s proposal involves acquiring Warner Brothers in its entirety, including premium TV networks like CNN, TBS, and TNT.
On Wall Street, Netflix’s decision to step back received high praise. In after-hours trading on Thursday, Netflix’s stock price rose by around 10%, Paramount’s stock increased by 5%, while Warner Brothers Discovery saw a slight decrease of 2%.
A Netflix consultant, who chose to remain anonymous, stated that Netflix’s rival is a billionaire willing to pay a “huge sum” for Warner Brothers – Larry Ellison, the co-founder of Oracle and the father of Paramount’s CEO David Ellison.
The consultant joked, “Playing ‘chicken’ with someone who refuses to change course is pointless.”
According to the latest offer, Ellison Trust will increase its equity investment from $43.6 billion to $45.7 billion, while a consortium led by Bank of America Merrill Lynch, Citi, and Apollo Global Management will raise the debt financing amount to $57.5 billion.
The merger of Paramount and Warner Brothers signifies the combination of two major Hollywood studios, two streaming platforms (HBO Max and Paramount+), and two news networks (CNN and CBS). However, this acquisition may still face antitrust scrutiny from Washington, foreign regulators, and various U.S. states, including California.
Analysts at TD Cowen mentioned in a report, “Given the current political environment, obtaining approval from federal regulatory bodies seems likely, but we believe that California Attorney General Rob Bonta and European regulators are likely to challenge this deal.”
California Attorney General Rob Bonta emphasized on February 26 that the matter is not yet settled. He added, “These two Hollywood giants have not yet passed regulatory review, and the California Department of Justice is conducting an investigation and will scrutinize rigorously.” Additionally, several Democratic senators are concerned that the deal may involve political bias.
Furthermore, if the deal falls through due to regulatory issues, Paramount would need to pay a breakup fee of up to $7 billion, and Paramount also agreed to pay a $2.8 billion breach of contract fee owed to Netflix by Warner Brothers in case of default.