Both Netflix and Paramount Skydance covet Warner Bros for its leading film and television studios, extensive content library and major franchises such as “Game of Thrones,” “Harry Potter” and DC Comics’ superheroes Batman and Superman.Paramount has changed its terms and launched an aggressive media campaign to convince shareholders its offer is superior, but Warner Bros has rejected the David Ellison-led company. It declined to comment Tuesday on Netflix’s all-cash offer.
Warner Bros will hold a special investor meeting to vote on the Netflix deal, with the streaming pioneer saying the meeting was expected to take place in April.
“Our revised all-cash agreement will enable an accelerated timeline for a shareholder vote and provide greater financial certainty,” Netflix co-CEO Ted Sarandos said in a statement.
Shares of Netflix, which is expected to report quarterly earnings
after market close, rose 0.9%. Shares of Paramount fell 1.9%, while shares of Warner Bros fell 0.5% in early trading.
Alex Fitch, portfolio manager of Harris Oakmark, the fifth largest investor in Warner Bros with about 96 million shares as of September 30, predicted that the bidding war for Warner Bros may not be over.
“This new agreement only increases the pressure,” Fitch said. “The changes show that Netflix is serious about winning, and the accelerated shareholder vote means Paramount must act urgently. It’s now up to Paramount to make a clearly superior offer if they want to make this happen.”
PREVIOUS BID FOR CASH AND SHARES REPLACED
Shares of Netflix have fallen nearly 15% since the merger was announced on December 5, closing Friday at $88 per share – well below the $97.91 floor price of the original offer. That drop was part of Paramount’s argument that its offer was superior.
Netflix’s new $27.75 per share offer replaces the previous cash and stock offer of $23.25 in cash and $4.50 in Netflix stock.
“The merger consideration is a fixed cash amount payable by an investment-grade company, providing shareholders (Warner Bros) with certainty of value and liquidity immediately following the closing of the merger,” Warner Bros. said.
The company’s board also announced its valuation of Discovery Global, a planned spin-off that will include television assets including CNN and TNT Sports and the streaming service Discovery+.
The board has maintained that the merger deal with Netflix is superior to Paramount Skydance’s $30 per share cash offer for the company because Warner Bros investors would retain a stake in separately traded Discovery Global.
Warner Bros’ advisors used three separate approaches to valuing Discovery Global. The lowest share price they arrived at was $1.33 per share, applying a single value for the entire company. The top end of the range they set was a price of $6.86 per share, if the spinoff were to be involved in a future deal. Paramount has said the cable spinoff at the heart of the streaming giant’s offering is effectively worthless.
PARAMOUNT TENDER EXPIRES JANUARY 21 The rival bidder went to court on January 12 to expedite the disclosure of this information so that investors could assess the competing offers for Warner Bros. A Delaware judge denied the request, ruling that Paramount had failed to demonstrate that it would suffer irreparable harm from the allegedly inadequate disclosures about Warner Bros.’s cable television business.
Paramount Skydance, whose bid expires on January 21, did not immediately respond to a Reuters request for comment.
“Paramount will make another call to shareholders. Unless Paramount increases its offer, the call will be window dressing,” said Emarketer analyst Ross Benes.
The race is expected to come to a head at a shareholder vote later this year, when Warner investors weigh the value of cable assets. Warner Bros reiterated the reasons for rejecting Paramount’s offer, saying the cash offer of $30 per share was insufficient, taking into account the “price” and numerous risks, costs and uncertainties.
“Netflix’s move to go all-cash with the Warner Bros. deal is a smart pivot at a time when its own declining share price has begun to weaken its hand,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “A cash offer removes uncertainty and is undoubtedly more attractive for Warner Bros.” perspective, even if it does nothing to facilitate regulatory oversight.”
A merger with Netflix would leave the combined company with about $85 billion in debt, compared to $87 billion for Paramount. But Netflix is worth significantly more, with a market valuation of $402 billion, compared to $12.6 billion for Paramount.
The partnership with Netflix would have less leverage (with a leverage ratio of less than four) than a ratio of around seven with Paramount.
Netflix also agreed to allow Warner Bros to reduce the amount of debt Discovery Global must carry by $260 million, according to the regulatory filing.
Netflix also has an investment-grade credit rating, while Paramount’s bonds have been rated at junk levels by S&P and would likely come under further pressure, Warner Bros said in its filing.
However, winning shareholder approval could only be the first step in what could be a long process, as lawmakers across the political spectrum have expressed concerns that further media consolidation could drive up prices and limit consumer choice.
The Ellisons have argued that their relationship with President Donald Trump gives them an easier regulatory path to approval.
#Netflix #shares #rise #allcash #deal #Warner #Bros