It’s been a newsy morning for an all-consuming giant media deal as Netflix agreed to let Warner Bros. Discovery engage in a week of conversation with Paramount. Will that engaging result in a formal, feasible, best-and-final rival offer for WBD by David Ellison’s company?
The giant streamer hinted it does not believe so but does hope the talks will allow everyone to move on, saying it granted the “narrow seven-day waiver … to fully and finally resolve this matter.”
A Warner statement and letter Tuesday morning seemed dubious about Par’s chances. Even as WBD announced the new talks, the David Zaslav-led company again recommended in favor of the Netflix transaction and set a March 20 meeting for shareholders to vote on it.
Warner acknowledged that Paramount’s last amended offer in particular addressed some of its concerns but implied that important assurances remain squishy. It wants all contingencies — from final price to financing to covenants — laid out clearly in a formal transaction document, not dispersed in press releases, letters and non-binding tender offers.
That includes Paramount’s apparent intent to raise its offer from $30 a share in cash to $31 or higher. According to WBD, a representative of a Paramount banker relayed to a WBD board member — verbally, not in writing — that the Ellisons were willing to top the $30 if Warner agreed to engage, one example of something very key to nail down.
Paramount has yet to describe any of its offers as “best and final,” which is what Warner says it requires to move forward.
Netflix has matching rights.
Paramount has insisted that it absolutely has met every one of Warner’s requests and assuredly would disagree with any other characterization. It has slammed WBD in the past for stalling and for refusing to engage. The company has not responded to a request for comment.
Paramount is offering to buy all of WBD. Netflix is taking the Warner Bros. Studios and streaming assets, with Warner spinning off linear TV to current stockholders through shares in a new stand-alone company called Discovery Global.
In a proxy filing with the SEC today, WBD set a virtual shareholders meeting for 8 am ET on March 20 for WBD stockholders of record as of 5 pm ET on February 4 eligible to vote on the Netflix deal (and on executive compensation related to the transaction, though that vote is non-binding).
WBD stockholder approval is not required to complete the Discovery Global spinoff, which Warner anticipates completing in the next five to eight months. Netflix and WBD currently expect their transaction will be completed in 12 to 18 months from December 4, 2025 — the day the deal was signed. It was announced December 5.
WBD and Netflix filed merger documents with the DOJ on December 17, starting the clock. The DOJ has 30 days to do nothing, sue to block the deal or ask for more details. It chose the latter, as is typical. Both WBD and Netflix received second requests for information on January 16. That extends the waiting period until 11:59 pm ET 30 calendar days after both parties have “certified substantial compliance with the requests.” The timing on that is not clear.
Meanwhile, the FTC or any state attorneys general could sue to block the deal, seek divestiture of assets or other “conduct relief” including requiring the parties to license or hold separate assets, or terminate existing relationships and contractual rights, WBD said.
Outside the U.S., the deal requires pre-closing filings to around 20 or more regulatory authorities and to some 10 or more foreign investment control authorities across South America, Asia and Europe including the European Union and the European Commission. On January 27, Netflix and WBD secured clearance for the deal from the foreign investment authorities in Germany (as did Paramount).
Discovery Global Center of the Storm
The WBD proxy has been awaited for clues as to how it will allocation its hefty debt between Discovery Global and the studio and streaming business. Paramount has noted and WBD acknowledged that the amounts could change the cash consideration Netflix would pay. The more debt layered on the businesses it’s buying, the less it will fork out to WBD shareholders.
WBD said Tuesday that net debt reduction, if any, at Discovery Global will be between $0 and $2 billion, resulting in a merger consideration of between $27.75 and $26.98, “based on information, estimates and assumptions as of the date of the accompanying proxy statement.”
“Illustratively, in a hypothetical scenario in which no debt is allocated to Discovery Global – which is highly unlikely to occur,” it said, “the Merger Agreement technically permits a maximum net debt reduction at Discovery Global that would result in a minimum Merger Consideration of $21.23.”
That is something Paramount is likely to grab onto as it reinforces their assertions that WBD shareholders do not have clarity on the ultimate price.
The difference, according to WBD, lies in the value of Discovery Global common stock that WBD stockholders will receive in the separation transaction. “Any net debt reduction at Discovery Global is expected to result in a corresponding increase in the equity value of Discovery Global, which value will be distributed to New WBD stockholders in the form of Discovery Global common stock.”
WBD’s board said that analysis by its financial advisers indicated an “approximate implied equity value reference range” for Discovery Global of $1.33 to $3.24 per share, and “a selected public companies sum-of-the-parts analysis indicating an approximate implied equity value reference range for Discovery Global” of $2.41 to $3.77 per share.
The board also noted Discovery Global could be worth $4.63 to $6.86 per share in a takeover.
It says that the numbers “imply superior value to WBD stockholders in the Netflix deal and split compared with the latest PSKY tender offer.”
PSKY has strenuously disagreed, putting the value of Discovery Global at much lower.