Warner Bros. Discovery (WBD) is currently the subject of competing acquisition bids from Netflix and Paramount Skydance. The WBD board has recommended that shareholders reject Paramount Skydance's offer in favor of an agreement with Netflix for its film and streaming assets. The proposals differ in scope, valuation, and proposed structure, leading to varied assessments of regulatory hurdles and strategic implications within the entertainment industry.
Overview of Competing Bids
Warner Bros. Discovery initiated a sale process in October following expressions of interest from multiple potential buyers, including Paramount Skydance. On December 5, WBD announced a tentative agreement to sell its film and streaming operations to Netflix. Subsequently, Paramount Skydance submitted a direct, unsolicited bid to WBD shareholders.
Warner Bros. Discovery Board's Recommendation
WBD's board of directors has advised shareholders to reject the $108.4 billion takeover bid from Paramount Skydance. The board unanimously recommended accepting the deal with Netflix for its film and streaming businesses, stating this agreement is in the company's best interests.
WBD Board Chairman Samuel Di Piazza characterized the Netflix agreement as offering "compelling value" with a "clear path to closing" and including "protections for shareholders." In legal filings and communications to shareholders, the board cited "numerous and significant risks" associated with Paramount Skydance's offer and rejected assertions regarding the nature of financial support from the Ellison family for Paramount Skydance's bid. The board stated that Paramount Skydance "repeatedly failed to submit the best proposal" despite receiving "clear direction" on identified "deficiencies and potential solutions." These deficiencies, the board noted, are not present in the Netflix merger agreement.
Netflix's Proposal
- Scope: Netflix's proposal targets WBD's film and streaming businesses, including its movie studio, HBO, HBO Max, the games division, and access to WBD's content library.
- Exclusions: This bid excludes WBD's pay-TV channels such as CNN, TNT, and Discovery. The agreement would require WBD to divest these television networks into a separate entity prior to the acquisition's completion.
- Valuation: The WBD board recommended a $72 billion deal with Netflix. Netflix's initial proposal had an enterprise value of $82.7 billion, which included an offer of $23.25 cash and $4.50 in Netflix common stock per WBD share. Netflix is reportedly preparing a revised, all-cash offer.
- Valuation Changes: Since the initial Netflix deal announcement, Netflix's shares have decreased by over 12%, falling below a specified "collar" of $97.91 per share in the original agreement. Paramount's analysis dated January 8 suggested the total value of the Netflix transaction to WBD shareholders, accounting for the decline in Netflix's share price, was $27.42 per share. Paramount Skydance also alleged that shares of the proposed Discovery Global spin-off would hold no value.
- Funding: The WBD board described Netflix's offer as "well financed" with a clearer funding structure. It is backed by $59 billion in debt financing from Wells Fargo, BNP, and HSBC.
- Regulatory Stance: Netflix has emphasized reduced regulatory risks and has confirmed engagement with the U.S. Department of Justice and the European Commission regarding antitrust considerations.
Paramount Skydance's Proposal
- Scope: Paramount Skydance's offer aims to acquire Warner Bros. Discovery in its entirety, encompassing the film studio, streaming services, and all television networks, including those that compete with Paramount's existing channels (e.g., CBS, MTV, Showtime).
- Valuation: The offer values the entire company at approximately $108.4 billion (£80.75 billion), proposing $30 per share directly to WBD shareholders. Paramount's initial bid in October was for $24 per share, later revised to $27 per share, before the $30 per share unsolicited bid.
- Support: The bid is supported by the Ellison family (Larry Ellison, David Ellison), RedBird Capital Partners, and sovereign wealth funds from Saudi Arabia, Qatar, and Abu Dhabi. Jared Kushner's fund is also among the financial partners.
- Paramount's Arguments: Paramount Skydance has characterized its proposal as a "superior alternative" to Netflix's, citing the provision of more upfront cash to shareholders and a higher probability of regulatory approval. Paramount's legal representatives formally questioned the WBD sale process, raising concerns about its "fairness and adequacy" and alleging it favored a single bidder and was "myopic." Larry Ellison stated that WBD's plan to spin off its traditional networks might disadvantage shareholders.
- Actions: Paramount Skydance submitted its bid as an unsolicited takeover offer directly to WBD shareholders. The company has filed a lawsuit seeking to compel WBD to disclose financial details of the Netflix deal, specifically regarding WBD's valuation of the proposed Discovery Global cable TV networks spin-off. Paramount also announced its intention to launch a proxy fight, planning to nominate board candidates for election at WBD's annual shareholder meeting who would support the Paramount bid.
- Outlook: Paramount Skydance maintains that its offers do not represent its "best and final" proposal and retains the option to submit a revised offer.
Regulatory and Industry Considerations
- Antitrust Review: Both acquisition proposals are anticipated to undergo scrutiny from competition regulators in the United States and Europe, given the potential for significant consolidation in the global entertainment sector.
- Netflix's Potential Impact: Analysts suggest Netflix's plan could raise concerns regarding market dominance in streaming services. Former President Donald Trump has expressed concerns regarding potential competition if Netflix's acquisition were to proceed.
- Paramount's Potential Impact: Paramount's proposal could prompt a review of its effects on advertisers and local television distributors, given the potential combined influence over sports and children's programming. Regulators could scrutinize a full acquisition due to concerns about further consolidation and its impact on consumer choice.
- Political Associations: Paramount Skydance's bid has generated discussion due to the involvement of individuals and entities with political ties, including Jared Kushner. Former President Trump has also publicly commented on the sale of CNN.
- Theatrical Distribution: Netflix has indicated intentions to maintain Warner Bros.' current operations, including theatrical releases for films, addressing some apprehension among film exhibitors who advocate for traditional theatrical releases.
Financial Context and Leadership
- WBD Financials: Warner Bros. Discovery reported financial losses exceeding $11 billion in the past year, with its stock value decreasing by nearly 7%.
- CEO Compensation: During the same period, WBD CEO David Zaslav's compensation totaled $51.9 million.
- Leadership Background: Mr. Zaslav assumed leadership of Warner Bros. Discovery in 2022 following the merger of Discovery, Inc. and AT&T's WarnerMedia. This consolidation involved job reductions.
- Company Statement: Robert Gibbs, WBD's head of communications, stated that under Mr. Zaslav's leadership, the studio has "regained its leadership position with a unique slate of films led by original content, seen the relaunch of the DC Universe under a single unified leadership team with ten year plan and the streaming service has launched globally and become profitable for the first time ever."
Broader Industry Context
The acquisition discussions are occurring during a period of significant transformation in the entertainment industry, marked by production slowdowns, concurrent actor and writer strikes in 2023, and increased consolidation. Industry professionals are adapting to an evolving landscape characterized by ongoing consolidation and the increasing integration of artificial intelligence in entertainment production.