In a strategic move to accelerate its acquisition and fend off a rival bid, Netflix has enhanced its $82.7bn (£61.5bn) proposal for Warner Bros Discovery (WBD) by converting it into an all-cash offer. This revision aims to streamline the transaction and provide greater financial certainty for WBD stockholders, as the streaming giant faces a hostile takeover attempt from Paramount Skydance.
Streamlining the Deal for Faster Completion
Netflix had initially secured unanimous backing from the WBD board last month with a cash-and-shares proposal valuing the business at $27.75 per share. The switch to an all-cash offer at the same valuation simplifies the transaction structure and is designed to expedite the path to a stockholder vote, potentially as early as April.
Ted Sarandos, co-chief executive of Netflix, stated, "Our revised all-cash agreement will enable an expedited timeline to a stockholder vote and provide greater financial certainty at $27.75 per share in cash, plus the value from the planned separation of Discovery Global." He added that the WBD board continues to support and unanimously recommend the transaction, expressing confidence it will benefit stockholders, consumers, creators, and the broader entertainment community.
Paramount's Hostile Bid and Legal Challenges
Paramount is aggressively pursuing its own $108.4bn cash takeover of the entire WBD entity, taking a hostile approach to override the board's agreement with Netflix. Last week, Paramount announced plans to nominate directors to WBD's board to vote against the Netflix deal and filed a lawsuit seeking disclosure of financial information related to the agreement. However, on Thursday, a judge at a Delaware court rejected Paramount's lawsuit, dealing a setback to its efforts.
To derail the Netflix deal, Paramount aims to nominate directors for election at WBD's annual meeting, typically held in June. Winning this proxy fight would require convincing enough WBD investors to vote in favour of Paramount's nominees to replace existing or new directors proposed by WBD's board. Paramount has also indicated it intends to propose an amendment to WBD's bylaws to require shareholder approval for the spin-off of the global networks business.
Key Assets and Financial Implications
Under the Netflix deal, the streaming company would gain control of WBD's prized assets, including Warner Bros, the studio behind franchises like Harry Potter, Superman, and Batman, as well as HBO, home to acclaimed shows such as Game of Thrones, The White Lotus, and Succession. WBD investors would also receive shares in its global networks operation, including CNN, the Cartoon Network, and the Discovery Channel, which is being spun off as a separate entity since Netflix is not acquiring it.
WBD's board has twice advised shareholders to reject Paramount's $108.4bn hostile bid, labelling it "inadequate" and the "largest LBO [leveraged buyout] in history," citing risks in its structure. The terms of the Netflix agreement include a $2.8bn breakup fee if WBD walks away, while Paramount's revised offer matches this with a $5.8bn termination fee. However, WBD estimates that accepting the Paramount deal would incur $4.7bn in costs, including the breakup fee to Netflix, additional interest on debt, and a $1.5bn fee for failing to complete a debt exchange.
This high-stakes battle highlights the intense competition in the entertainment industry as companies vie for dominance in streaming and content creation, with significant financial and strategic implications for all parties involved.
