Paramount started off the week by firing a full salvo in response to Netflix’s announcement that it had reached an agreement to acquire Warner Bros. Discovery. Paramount announced that it would pursue a hostile takeover of the entire company, including its legacy TV and cable assets. The Netflix offer envisioned acquiring only the studio and streaming assets of WBD, after the TV and cable businesses had been spun off into a separate company.
Paramount addressed their offer directly to the shareholders of Warner Bros. Discover, bypassing its Board of Directors which Paramount claims is not acting in the best interest of its shareholders. Paramount’s new bid is to pay $30 per share in cash, amounting to a total acquisition cost of $108 billon. One week earlier on Friday December 5th, Netflix announced its “successful” bid at $27.50 per share or $82.7 billion, paid out in a combination of Netflix stock and cash. Paramount’s counteroffer injects more uncertainty in the ultimate fate of WBD.
Shortly after Paramount’s takeover bid was announced, its Chairman and CEO David Ellison went on CBNC to make the case for why his company’s offer was superior to Netflix’s. The argument boils down to two points. First the regulators should be concerned about Netflix’s ascent to a monopoly position in streaming. Ellison attempted to holes in Netflix’s argument that the addition of WBD would allow it to compete with against its real rival, YouTube. Ellison suggested that Netflix buying HBO Max would “be like Coke buying Pepsi to compete with water.” Disney CEO Bob Iger made similar points in his public statements. Even President Trump noted that the dominant market share in streaming that Netflix would attain through the acquisition would be “a problem.”
Ellison’s second point is that Paramount’s offer is better for shareholders, taking on the entire company in an all-cash transaction for an amount that is $108.4 billion, or 31% higher than Netflix’s offer of $82.7 billion. Of course, the Netflix offer would also leave current WBD with some additional value in the shares of the spin-off company created to manage WBD’s cable assets. The value of this asset is a key question in assessing which of the two bids is superior for the shareholders. In Paramount’s offer, the cable asset is valued at $1 per share, whereas Netflix has argued that the actual value is two to three times higher. Ultimately, it will be up to the majority of Warner Bros. Discovery shareholders to decide which offer is more attractive. At that point, the regulators will weigh in with their review, ensuring that the fate of Warner Bros. Discovery will not be resolved until well into 2026, if then.
