CALIFORNIA: David Ellison is trying to rewrite the ending to the most dramatic story in Hollywood.
Paramount Skydance Corp’s chief executive officer (CEO) will be able to make a “best and final” offer for Warner Bros, potentially upsetting the storied film and television (TV) company’s rival deal with Netflix Inc.
Warner Bros agreed on Tuesday to reopen negotiations with Paramount after receiving a revised proposal last week that sweetened some of its terms.
Paramount had indicated it will raise its bid by at least US$1 a share to US$31 if Warner’s board reengages.
It’s the first increase in Paramount’s proposed bid since Warner Bros agreed to sell the majority of its business to Netflix for US$27.75 a share in December.
Ellison, who took control of Paramount in August, began his pursuit of Warner Bros a month later.
Netflix has granted Warner’s board seven days to discuss Paramount’s most recent proposal, according to a statement on Tuesday.
Paramount called Warner Bros’ moves “unusual” and said it avoided “making the customary determination” that Paramount’s US$30-a-share offer could lead to a superior proposal.
That would have given Paramount the right to negotiate without a deadline.
“Paramount is nonetheless prepared to engage in good faith and constructive discussions,” the company said in a statement.
“Throughout the entire process, our sole focus has been on maximising value and certainty for Warner Bros Discovery Inc (WBD) shareholders,” Warner Bros CEO David Zaslav said in the statement.
Warner Bros said its board still unanimously recommends shareholders vote in favor of its binding agreement to sell its namesake studios and HBO Max streaming service to Netflix for US$72bil.
Paramount’s US$77.9bil bid, which is backed by billionaire Larry Ellison, is for the entirety of Warner Bros, including cable-TV channels such as CNN and TNT that are otherwise planned to be spun off under the deal with Netflix.
Warner Bros has scheduled a shareholder vote on the Netflix proposal for March 20.
Netflix co-CEO Ted Sarandos said in an interview with CNBC that his company granted Warner Bros permission to reopen talks because Paramount has been “making a tonne of noise, flooding the zone with confusion” about his company’s deal.
The talks will “give them seven days to put their money where their mouth is,” Sarandos said.
Paramount doesn’t have a better chance of winning regulatory approval, and its balance sheet will be highly leveraged if it wins Warner Bros, leading to lower film output, according to Sarandos.
Asked if Netflix planned on raising its bid, Sarandos said, “Let them make a move and then we’ll see where the next step is.”
The decision to reengage with Paramount, which confirms Bloomberg’s reporting Sunday, adds another twist in the long drawn-out saga over control of one of Hollywood’s most iconic properties.
The fight for Warner Bros, the century-old studio behind films from Casablanca to Batman, and hit TV series like Friends, is one of the biggest media deals in years and has the power to reshape the entertainment industry.
Paramount Skydance, which was only formed last August as the result of a combination with Ellison’s Skydance Media, sees the deal as an opportunity to transform itself quickly into a Hollywood powerhouse.
A victory for Netflix, meanwhile, would be a crowning achievement for the tech disruptor, making it possibly the most dominant player in entertainment history.
Both deals face significant regulatory hurdles that each bidder is convinced it will overcome more easily than the other.
Under the terms of the waiver granted by Netflix, Warner Bros can engage with Paramount until Feb 23.
In that time it plans to discuss unresolved “deficiencies” in the latest offer and clarify terms of the proposal, according to the statement.
After that negotiating period, if the Warner Bros board determines that Paramount has put forth a superior proposal, Netflix will have the right to match Paramount’s most recent offer to keep its existing agreement intact.
Paramount has been trying to buy Warner Bros since September of last year, an effort that resulted in Warner Bros formally putting itself up for sale.
The company increased its bid several times before ultimately losing to Netflix.
Three days later, Paramount mounted a hostile tender offer for Warner Bros at US$30 a share and has twice amended its offer since then, each time addressing some concerns but never raising its price.
“While we are confident that our transaction provides superior value and certainty, we recognise the ongoing distraction for WBD stockholders and the broader entertainment industry caused by Paramount Skydance Corp’s antics,” Netflix said in a statement.
“This does not change the fact that we have the only signed, board-recommended agreement with WBD, and ours is the only certain path to delivering value to WBD’s stockholders.”
Paramount has insisted its deal is better for shareholders and has spent the last couple months wooing regulators and investors.
In Paramount’s most recent proposal, it agreed to cover a US$2.8bil fee owed to Netflix if Warner Bros terminates its agreement and offered to backstop a Warner Bros debt refinancing.
Paramount also said it will compensate Warner Bros shareholders if the deal doesn’t close by Dec 31, underscoring Ellison’s confidence that he can win swift regulatory approval.
On Tuesday, Paramount said it will continue to advance its tender offer, solicit shareholder opposition to the Netflix merger and proceed with its intention to nominate a slate of directors at the upcoming Warner Bros annual meeting.
Some investors have come out in support of Paramount’s offer.
Last week Ancora Holdings Group urged the Warner Bros board to reject the Netflix deal and reconsider Paramount’s offer, and Pentwater Capital Management, the seventh-largest Warner Bros shareholder, has also encouraged the board to engage with Paramount.
But just 42.3 million shares were tendered to Paramount at last count, less than 2% of those outstanding. — Bloomberg
