Warner Bros. Discovery is cracking open the door to allow spurned bidder, Paramount Skydance, to make its case that it should win the legendary entertainment company — the latest twist in the contentious, high-stakes auction.
Warner’s decision to reopen talks comes after weeks of pressure from Paramount and its controlling shareholder, scion David Ellison and his billionaire father, tech mogul Larry Ellison. The Ellisons, who took control of Paramount last August, are refusing to concede defeat in their campaign to buy Warner Bros. Discovery to build a media behemoth.
Last week, Paramount submitted an enhanced offer to buy Warner and told Warner executives that it was prepared to raise its bid even higher.
Paramount’s willingness to hike its offer late in the process attracted attention of some Warner investors and challenged the Warner board’s steadfast embrace of a competing bid by Netflix.
“This is very dramatic,” Julie Clark, senior vice president of media and entertainment at information firm TransUnion. “What this [auction] is showing is the industry is at an inflection point: It’s about how scale and data and distribution will define the future of media.”
On Tuesday, Warner Bros. Discovery sent a letter to Paramount’s board, giving the group seven days to “clarify your proposal.”
“We seek your best and final proposal,” Warner board members wrote. Warner set a Feb. 23 deadline for Paramount to comply.
The closely watched sale of the century-old Warner Bros., known for “Batman,” “The Big Bang Theory,” Bugs Bunny, “Casablanca,” and HBO, the home of “Game of Thrones” and “Succession,” is expected to reshape Hollywood with yet more industry consolidation. It’s the largest media deal in nearly a decade and would hand some of the most beloved brands in entertainment to new owners.
The turmoil comes as Hollywood workers are struggling to remain viable amid a severe slow-down in film and TV production and changes brought by technology, including the shift to streaming and the increased use of artificial intelligence.
Warner Bros. Discovery and Netflix were attempting to enter the home stretch of the auction that Warner had sought to close on Dec. 4. Netflix on Tuesday reiterated its desire to buy the Warner assets and the strength of its proposal.
Warner Bros. Discovery has been recommending that its stockholders approve the $82.7-billion Netflix deal.
“Netflix is still in the driver’s seat, but [it is] now having to make its case,” Raymond James media analyst Ric Prentiss and his colleagues wrote in a note to investors.
Warner separately issued its proxy and scheduled a special March 20 meeting for shareholders to decide the company’s fate.
“We continue to believe the Netflix merger is in the best interests of WBD shareholders due to the tremendous value it provides, our clear path to achieve regulatory approval and the transaction’s protections for shareholders against downside risk,” Warner Chairman Samuel A. Di Piazza Jr. said in a Tuesday statement.
Still, the maneuver essentially reopens the talks.
Paramount now has an opportunity to sway Warner board members, which could perhaps prompt Netflix to raise its $27.75 a share offer for Warner’s Burbank-based studios, vast library of programming, HBO and streaming service HBO Max.
Netflix is not interested in buying Warner Bros. Discovery’s basic cable channels, including CNN, TBS, HGTV and Animal Planet, which are set to be spun off to a stand-alone company later this year. Warner shareholders will get stock in the new company, but the value of the channels remains in dispute, prompting some Warner shareholders to lean to the Paramount deal, which the firm says provides more certainty.
“We have long believed that PSKY was willing to raise the dollar price on its offer, and now it seems we are finally moving in that direction,” Prentiss wrote. “We believe [Netflix] would match a proposed PSKY bid raise, but will not chase WBD to the ends of the earth.”
Paramount has been pursuing the prized assets since September. The Ellison firm wants to buy the entire company and has offered more than $30 a share. It told Warner’s team that it was prepared to raise its bid beyond $31 a share, according to Warner’s filings.
Warner stock climbed 2.7%, closing at $28.75 a share. Paramount jumped 5% to $10.83 a share.
Last week, Paramount sweetened its bid for Warner, adding a $2.8-billion “break fee” that Warner would have to pay Netflix if the company pulled the plug on that deal. Paramount also said it would pay Warner investors a “ticking fee” of 25 cents a share for every quarter after Jan. 1 that the deal does not close.
“Although the [Warner] Board’s actions are unusual, Paramount is nonetheless prepared to engage in good faith and constructive discussions,” Paramount said Tuesday in a statement, noting that it was still asking Warner shareholders to tender their shares to Paramount.
“We will continue to advance our tender offer, maintain our solicitation in opposition to the inferior Netflix merger, and proceed with our intention to nominate a slate of directors at the upcoming WBD annual meeting,” Paramount said.
Netflix agreed to give Warner Bros. Discovery a temporary waiver from its merger agreement to allow Warner Bros. Discovery to reengage with Paramount.
“We granted WBD a narrow seven-day waiver of certain obligations under our merger agreement to allow them to engage with PSKY to fully and finally resolve this matter,” Netflix said Tuesday in a statement. “This does not change the fact that we have the only signed, board-recommended agreement with WBD, and ours is the only certain path to delivering value to WBD’s stockholders.”
Netflix has matching rights for any improved Paramount offer. The Los Gatos company renewed its confidence in its deal and its prospect to win regulatory approval.
“PSKY has repeatedly mischaracterized the regulatory review process by suggesting its proposal will sail through, misleading WBD stockholders about the real risk of their regulatory challenges around the world,” Netflix said in its statement. “WBD stockholders should not be misled into thinking that PSKY has an easier or faster path to regulatory approval — it does not.”
Warner Bros. Discovery acknowledged that Paramount’s recent modification “addresses some of the concerns that WBD had identified several months ago,” according to the letter to Paramount.
But Warner Bros. Discovery added Paramount’s offer “still contains many of the unfavorable terms and conditions that were in the draft agreements … and twice unanimously rejected by our Board,” Warner Bros. Discovery said.
Warner’s board told Paramount it will “welcome the opportunity to engage” during the seven-day negotiation period.
“This is a unique situation,” TransUnion’s Clark said. “It underscores the uncertainty in the market, and uncertainty for media companies overall.”