Warner Bros. Says $31-Per-Share Paramount Bid May Surpass Netflix Deal

This article first appeared on GuruFocus.

Warner Bros. Discovery (NASDAQ:WBD) said Tuesday that a revised $31-a-share proposal from Paramount Skydance (NASDAQ:PSKY) could potentially result in a more attractive outcome than its existing $27.75-a-share agreement with Netflix (NASDAQ:NFLX), reopening what may become another competitive phase for its studio and HBO operations. The board is not withdrawing its recommendation in favor of the Netflix transaction at this stage, but it acknowledged that Paramount’s updated terms meet the threshold for renewed engagement. If the board ultimately determines that the revised bid is superior, Netflix would have four business days to respond, a provision that keeps competitive tension intact.

Paramount’s latest offer represents a $1 increase from its prior $30-a-share proposal, which had been valued at about $108 billion including debt. By comparison, Netflix’s agreement has been valued at roughly $82.7 billion on that basis, although Warner Bros. has indicated that a spinoff of its cable channels could deliver additional value to shareholders. The updated Paramount proposal also introduces a 25-cent-per-share quarterly ticking fee after Sept. 30 if regulatory approval has not been secured, along with a $7 billion payment should regulators block the transaction. In addition, Paramount agreed to contribute more equity if lenders cite solvency concerns to avoid funding the deal and committed not to use deterioration in Warner Bros.’ cable networks as grounds to walk away.

The latest move underscores that David Ellison’s pursuit of Warner Bros., ongoing since September, may not be winding down. Negotiations between the companies extended late into the final hours of a recent seven-day discussion window before expiring, leaving open issues that can now be revisited. Warner Bros. shares slipped less than 1% in extended trading following the announcement, while Paramount and Netflix both rose more than 1%. Against a backdrop of declining cable and theatrical revenue and heavy streaming investment, further consolidation in the sector could be viewed as one possible route toward stabilizing profitability.