WBD Says Paramount Sweeter Offer Might Lead To Better Deal Than Netflix

Big news. The ground has shifted as Warner Bros. Discovery said its board determined that a new proposal from Paramount could reasonably be expected to lead to a so-called “Company Superior Proposal” as defined in WBD’s merger agreement with Netflix and that it will continue talks with the David Ellison company.

The sweeter bid includes an increased purchase price of $31 a share in cash, plus a daily ticking fee of $0.25 per quarter beginning after September 30, 2026. It includes a $7 billion regulatory termination fee payable by Par if the transaction does not close due to regulatory roadblocks, payment by PSKY of the $2.8 billion termination fee that WBD would be required to pay to Netflix to terminate its existing Netflix deal, an obligation to contribute additional equity funding to the extent needed to support the solvency certificate required by PSKY’s lending banks, and a “Company Material Adverse Effect” definition that excludes the performance of WBD’s Global Linear Networks business.  

A Material Adverse Effect clause in M&A deals can allow a buyer to terminate or renegotiate terms if there’s a significant or unforeseen negative event, including financial underperformance, in this case at cable.

Paramount and WBD earlier today both confirmed the revised offer without details. Par was expected to bump the price up from $30 but it wasn’t clear how much higher it wwbdould go. The additional $1 a share increase was sufficient to get the ball rolling in conjunction with attention to other concerns Warner had raised.

WBD clarified that its board has not made a determination as to whether the revised PSKY proposal is, in fact, superior to the merger with Netflix, but the idea that it potentially could be. That allows WBD to engage further with PSKY to determine if they can come to an agreement.

If or when the board ultimately determines such it has a superior proposal in hand from Paramount, Netflix will have four business days to negotiate with WBD and to propose any revisions to its own transaction.

“There can be no assurance that the Board will conclude that the transaction proposed by PSKY is superior to the merger with Netflix or that any definitive agreement or transaction will result from WBD’s discussions with PSKY,” the board said. Meanwhile, the Netflix deal remains in effect. The board “continues to recommend in favor of the Netflix transaction and is not withdrawing or modifying its recommendation.”

Netflix declined to comment. The giant streamer has a deal to buy Warner’s studio and streaming assets for $27.75 in cash. Warner would spin off its cable networks into a separate public company, with shareholders getting stock in the new entity.

Paramount started lobbing unsolicited offers for WBD last fall, not long after it closed the Skydance merger in August. Warner decided to open up an auction process and chose Netflix over Par and several other bidders. They announced a deal Dec. 5. Paramount took its offer directly to shareholders at that point with a hostile tender offer that it subsequently revised several times. But, until today, its overtures have been rebuffed outright by WBD.