Netflix vs. Paramount: Who will win the $82.7 billion Warner Bros bidding war?
In a competitive twist within the streaming landscape, Netflix has made a staggering all-cash offer worth $82.7 billion for the studio and streaming arms of Warner Bros Discovery, aiming to outstrip Paramount's rival proposal. Under the terms, Warner Bros shareholders stand to gain $27.
Netflix has switched to an all-cash offer of $82.7 billion for Warner Bros Discovery's studio and streaming businesses, receiving unanimous support from the HBO owner's board. This move aims to close the door on rival Paramount's competing efforts. The revised agreement involves Netflix paying Warner Bros shareholders $27.75 per share in cash for the film and television studios, its extensive content library, and the HBO Max streaming service, replacing a previous mix of cash and stock.
Both Netflix and studio operator Paramount have expressed strong interest in acquiring Warner Bros due to its prominent film and television studios, vast content library, and major franchises like "Game of Thrones," "Harry Potter," and DC Comics' superheroes. Warner Bros has previously rejected offers from David Ellison-led Paramount, which had modified its terms and launched an aggressive media campaign to persuade shareholders of its bid's superiority.
Under the revised terms, Netflix will pay $27.75 per share in cash. This is a shift from the earlier proposal, which included $23.25 in cash and $4.50 in Netflix stock.
"The merger consideration is a fixed cash amount to be paid by an investment-grade company, providing (Warner Bros) stockholders with certainty of value and liquidity immediately upon closing the merger."
Netflix shares saw a slight increase of 0.7% in premarket trading following the announcement. Paramount shares experienced a decline of 1%, while Warner Bros stock remained largely unchanged.
NETFLIX SHARES HAVE DROPPED.
Netflix shares have experienced a significant decline, falling nearly 15% since the initial merger announcement on December 5. The stock closed at $88 per share on Friday, which is considerably below the $97.91 floor price of the original bid. This drop has been a key point in Paramount's argument that its offer is superior.
The Warner Bros board also provided details regarding its valuation of Discovery Global. This planned spin-off will encompass television assets such as CNN and TNT Sports, along with the Discovery+ streaming service.
The board has consistently maintained that the Netflix merger deal is more advantageous than Paramount Skydance's $30-per-share cash bid. This is because Warner Bros investors would retain an ownership stake in the separately traded Discovery Global.
Warner Bros' financial advisors employed three distinct methodologies to determine the valuation of Discovery Global. The lowest valuation arrived at was $1.33 per share, calculated by applying a uniform value across the entire company. The highest valuation reached was $6.86 per share, contingent on the spin-off being involved in a future transaction.
Paramount has publicly stated that the cable spin-off, which is central to Netflix's offer, is essentially without value. The rival bidder initiated legal action on January 12, seeking to expedite the disclosure of information related to this spin-off. The objective was to enable investors to more effectively evaluate the competing offers for Warner Bros. However, a Delaware court judge dismissed this request, ruling that Paramount had not sufficiently demonstrated it would suffer irreparable harm from the alleged inadequate disclosures concerning Warner Bros' cable TV business.
Paramount Skydance did not immediately provide a comment when contacted by Reuters. Warner Bros reiterated its rationale for rejecting Paramount's bid, asserting that its all-cash offer of $30 per share was insufficient after accounting for the "price and numerous risks, costs and uncertainties."
A merger with Netflix would result in the combined entity carrying approximately $85 billion in debt. This compares to the $87 billion in debt that would be associated with a Paramount merger. However, Netflix possesses a significantly higher market valuation, standing at $402 billion, in contrast to Paramount's $12.6 billion valuation.
The proposed tie-up with Netflix would result in a less leveraged company, with a leverage ratio of under four. This is in contrast to a ratio of about seven that would be expected with Paramount.
Furthermore, Netflix holds an investment-grade credit rating. Warner Bros noted in its filing that Paramount's bonds are rated at junk levels by S&P and would likely face additional pressure.