While a Netflix – Warner Bros. Discovery marriage looked like a sure thing for a while, a bigger better deal offered by Paramount Skydance has thrown a wrench into the impending nuptials, causing Netflix to walk away from the altar.
Netflix had been ready to take over Warner Bros. Discovery – acquiring Warner Bros., HBO, and HBO Max in a cash-and-stock deal valued at $72 billion in equity and $82.7 billion, including debt – but then Paramount made a last minute $111 billion offer, including debt.
Netflix decided that number would not make good business sense (see how it works, Disney?) and opted to walk away from negotiations.
In a Thursday announcement, Netflix co-CEOs Ted Sarandos and Greg Peters said:
The transaction we negotiated would have created shareholder value with a clear path to regulatory approval. However, we’ve always been disciplined, and at the price required to match Paramount Skydance’s latest offer, the deal is no longer financially attractive, so we are declining to match the Paramount Skydance bid.
We believe we would have been strong stewards of Warner Bros.’ iconic brands, and that our deal would have strengthened the entertainment industry and preserved and created more production jobs in the U.S. But this transaction was always a ‘nice to have’ at the right price, not a ‘must have’ at any price.
Paramount will pay a $ 31-per-share fee for WBD, while also paying a $7 billion fee if the deal falls apart due to regulatory issues. Paramount is also willing cough up a $2.8 billion termination fee, which Warner Brothers will be forced to pay to Netflix for not closing the merger.
Netflix shares surged by 8.5% in after-hours trading, meaning investors appreciated the streaming giant’s decision not to overpay for Warner Bros. Discovery.
The Warner’s board said on Thursday that it still recommends Netflix’s offer, although it views the Paramount bid as “superior.” The board had originally viewed Paramount’s bid as “hostile” when the merger talks began back in December.
Warner Bros. CEO David Zaslav was quoted as saying Paramount’s offer “will create tremendous value,” and that the studio was “excited about the potential of a combined Paramount Skydance and Warner Bros Discovery.”
The deal would see Paramount Skydance take control of number 3 streaming service HBO Max, Warner Bros. studios, CNN and several popular properties, including The Big Bang Theory, The Sopranos, Game of Thrones, The Wizard of Oz and the DC Universe. This means federal regulatory approval isn’t a sure thing, as there may be concerns about one company holding all of those high cards.
That said, Paramount owner Larry Ellison is friends with US president Donald Trump, so the deal should face clear sailing from here.
