Netflix drops Warner Bros bid, leaving Paramount the winner with $140 billion deal

LOS ANGELES – Netflix has dropped out of a months-long battle to buy Warner Bros Discovery, clearing the way for rival bidder Paramount Skydance to clinch its US$111 billion (S$140.3 billion) offer for the historic Hollywood studio.

“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,” Netflix said in a statement on Feb 26.

Netflix shares jumped as much as 13 per cent in after-hours trading, indicating that investors were happy to see the company walk away from the deal.

Warner Bros shares fell with investors no longer anticipating a bidding war. Paramount shares were unchanged. 

Netflix inked an US$82.7 billion deal, including assumed debt, to acquire the studio and streaming businesses of Warner Bros in December, but repeated counter-offers from Paramount for the entire company reopened the bidding. Warner Bros deemed Paramount’s latest US$31-a-share offer superior on Feb 26.

The Warner Bros board still has to terminate the Netflix deal and adopt Paramount Skydance’s offer.

“Once our board votes to adopt the Paramount merger agreement, it will create tremendous value for our shareholders,” Warner Bros chief executive officer David Zaslav said in a statement.

Paramount’s merger with Warner Bros would unite two major Hollywood studios, two streaming platforms (HBO Max and Paramount+) and two news operations (CNN and CBS).

The two have launched their own streaming services but lack the subscriber base of rivals like Netflix, as their traditional networks continue to lose viewers and advertisers.

Paramount made adjustments to the terms of its offer after repeated rejections by Warner Bros. Those included personal guarantees on more than US$40 billion in equity from Mr Larry Ellison, father of Paramount CEO David Ellison, and Oracle co-founder and chairman and one of the world’s richest men.

A Netflix adviser said the company was bidding against a billionaire who signalled a willingness to pay a price for Warner Bros that Netflix viewed as irrational.

“There’s no point in playing chicken with someone who won’t turn the wheel,” said the source.

Paramount also promised to give Warner Bros US$2.8 billion to pay Netflix for terminating their agreement, and to pay Warner Bros US$7 billion if its deal fails to secure the required regulatory approvals.

Regulatory concerns

Paramount lobbied regulators and politicians, including US President Donald Trump, with CEO Ellison making multiple trips to Washington to make his case.

Despite the Ellisons’ ties with Mr Trump, Paramount’s bid is likely to face antitrust scrutiny in Washington, foreign countries and US states including California.

“Approval from federal regulators seems likely given the political environment; however, we think it is very likely that some state regulators – most notably, California Attorney-General Rob Bonta – could attempt to challenge the deal,” TD Cowen analysts said in a note.

“We think there is potential for European regulators to have a say as well.”

Mr Bonta, a Democrat, said late on feb 26 that this is not a done deal.

“These two Hollywood titans have not cleared regulatory scrutiny – the California Department of Justice has an open investigation, and we intend to be vigorous in our review,” he added.

States have the power to sue to block deals, though the US Department of Justice has the most resources to do so.

Democratic senators Elizabeth Warren, Bernie Sanders and Richard Blumenthal have expressed worry that approval of the deal could be tainted by political favouritism. BLOOMBERG, REUTERS