Paramount outbid Netflix in the battle for Warner Bros. What Wall Street thinks

Paramount Skydance has made a new offer to buy Warner Bros. Discovery (WBD), which owns the rights to "Game of Thrones," "Harry Potter" and "Lord of the Rings": at $30 per share in cash.

In doing so, Paramount tried to outbid Netflix for an offer that Warner had already agreed to: the streaming giant agreed to buy a portion of WBD's business for $27.75 per share in cash and securities.

"WBD shareholders deserve the opportunity to consider our better offer - acquiring the entire business for cash," Paramount CEO David Ellison said in a press release. - Our public offer reiterates the terms previously conveyed to the board of directors of Warner Bros. Discovery privately: it provides higher value,greatercertainty and a faster execution of the transaction."

The difference in the proposals of Paramount and Netflix is that Netflix intends to buy only Hollywood studios and Warner's streaming business, while Paramount claims the entire company. In October, Warner decided to put itself up for sale and held several rounds of talks with Netflix and Comcast, Bloomberg recalls. Under the terms of the December 5 deal with Netflix, Warner Bros. intended to spin off its cable networks, including CNN, TNT and Discovery Channel, before the merger was finalized.

Netflix's deal with Warner Bros. Discovery was valued at $72 billion. Paramount on Monday said its offer would bring WBD shareholders $18 billion more than Netflix's offer. The company also argued that its deal has a better chance of approval from antitrust regulators because Netflix controls a much larger share of the streaming market than Paramount+.

"We just want to follow through with what we started," Ellison told CNBC.

If Warner backs out of the deal with Netflix, it will have to pay a penalty of $2.8 billion, Bloomberg notes, and explains that, as a rule, this amount falls on the new buyer. Netflix, in turn, has pledged to pay Warner Bros. $5.8 billion if the deal falls through or fails to get regulatory approval.

"The takeover of Warner Bros. Discovery is far from over," Emarketer analyst Ross Benes told Bloomberg. - Netflix is in the lead now, but there are plenty of twists and turns before the finish line. Paramount will appeal to shareholders, regulators and politicians to make a deal with Netflix more difficult. The battle could drag on."

According to IG Group senior analyst Chris Beecham, Paramount, on the contrary, believes it is in a better position now, and that the benefits of buying WBD are worth trying again, writes Reuters. "Now we'll have to see if Netflix is still willing to go through the short-term shareholder pain to make its offer even more attractive," Beecham noted.

"Paramount as a whole has a greater need for this deal than Netflix, and that may be a driving factor in the valuation it gave Warner Bros. Paramount remains a traditional entertainment company that lacks the scale needed in today's world. Consolidating among its peers is a smart bet, it gives them the best opportunity to compete with Disney for second place behind Netflix," Quilter Cheviot 's head of technology research Ben Barringer said, as quoted by Reuters.

Paramount needs to be very careful about the debt it intends to take on to finance the Warner Bros. acquisition, Huber Research Partners analyst Craig Huber warned as quoted by Reuters. Paramount said Dec. 8 that it had secured loans from Bank of America, Citi and Apollo totaling $54 billion. "Debt is not your friend in the case of media stocks. Did the CBS and Viacom merger work?" he noted.

In trading on December 8, shares of Warner Bros. at the moment rose by 8%, having updated the maximum since February 2022. Paramount shares were up to 9%. Netflix shares, on the contrary, were falling by almost 5%.

This article was AI-translated and verified by a human editor