Netflix has switched to an all-cash offer for Warner Bros Discovery’s studio and streaming assets, without raising its $82.7 billion valuation, in a move aimed at shutting the door on rival efforts by Paramount to acquire the Hollywood company.
The revised all-cash bid, priced at $27.75 a share, has unanimous backing from Warner Bros’ board, according to a regulatory filing released on Tuesday.
Both Netflix and Paramount Skydance are seeking to acquire Warner Bros for its major film and television studios, vast content library and blockbuster franchises such as “Game of Thrones,” “Harry Potter,” and DC Comics superheroes including “Batman” and “Superman.”
Paramount has revised its offer and mounted an aggressive media campaign to persuade shareholders that its bid is superior. Warner Bros, however, has rejected the David Ellison-led company’s approach.
“Our revised all-cash agreement will enable an expedited timeline to a stockholder vote and provide greater financial certainty,” Netflix co-CEO Ted Sarandos said in a statement.
Shares of Netflix, which is scheduled to report quarterly earnings after market close, rose 1.2% before the bell. Paramount shares fell 1%, while Warner Bros shares were little changed.
EARLIER CASH-AND-STOCK BID REPLACED
Netflix shares have fallen almost 15% since announcing the merger on December 5, closing at $88 per share on Friday – well below the $97.91 floor price of the original bid. That drop was part of Paramount's argument that its bid was superior.
The new $27.75-per-share offer from Netflix replaces its earlier cash-and-stock bid for $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," Warner Bros said.
The company's board also disclosed its valuation for Discovery Global, a planned spin-off that will contain television assets including CNN and TNT Sports and the Discovery+ streaming service.
The board has maintained that the Netflix merger deal is superior to Paramount Skydance's $30-per-share cash bid for the company because Warner Bros' investors would retain a stake in the separately traded Discovery Global.
Warner Bros' advisers used three separate approaches for valuing Discovery Global. The lowest share price they arrived at was $1.33 per share, by applying a single value across the whole company. The high end of the range they determined was a price of $6.86 a share, if the spin-off became involved in a future deal.
Paramount has said the cable spinoff central to the streaming giant's offer is effectively worthless.
PARAMOUNT TENDER EXPIRES JAN 21
The rival bidder went to court on January 12 to expedite the disclosure of this information, so investors could evaluate the competing offers for Warner Bros. A Delaware court judge rejected the request, finding that Paramount had failed to demonstrate it would suffer irreparable harm from the alleged inadequate disclosures about Warner Bros' cable TV business.
Paramount Skydance, whose tender offer expires on January 21, did not immediately respond to a Reuters request for comment.
"Paramount will make another appeal to shareholders. Unless Paramount raises its bid, the appeal will be window dressing," Emarketer analyst Ross Benes said.
The race is expected to come to a head at a shareholder vote later this year as Warner investors weigh the value of cable assets.
Warner Bros reiterated its reasons for rejecting the Paramount bid, saying its all-cash offer of $30 a share was insufficient after factoring in the "price and numerous risks, costs and uncertainties."
A merger with Netflix would leave the combined company with roughly $85 billion in debt, compared with $87 billion for Paramount. But Netflix is worth considerably more, with a market valuation of $402 billion, compared with $12.6 billion for Paramount.
The Netflix tie-up would be less leveraged - carrying a leverage ratio of under four - than a ratio of about seven with Paramount.
Netflix also agreed to allow Warner Bros to reduce the amount of indebtedness to be borne by Discovery Global by $260 million, according to the regulatory filing.
Netflix also has an investment-grade credit rating, whereas Paramount's bonds are rated at junk levels by S&P and would likely come under further pressure, Warner Bros said in its filing.
Winning over shareholders approval however may only be the first step in what could be a long process, given lawmakers across the political spectrum have voiced concerns that further media consolidation could drive up prices and reduce consumer choice.
The Ellisons have argued that their relationship with President Donald Trump gives them an easier regulatory path to approval.