Paramount Poised to Acquire Warner Bros. Discovery After Netflix Bails

Paramount Skydance is poised to acquire Warner Bros. Discovery in its entirety after a whirlwind afternoon in which Netflix dropped out of the hunt despite having reached an agreement in December to acquire most of WBD.

Netflix on Thursday afternoon formally declined to increase its offer for Warner Bros. Discovery after the WBD’s declared Paramount Skydance’s latest bid a “superior proposal” to the agreement it already had in hand with Netflix.

The swift decision by Netflix to walk away will certainly come as a shock to the industry because the streamer had four business days, or until Wednesday, March 4 at 11:59 p.m. ET, to come up with a new proposal to salvage its WBD deal. Adding to this surprise is the fact Netflix co-CEO Ted Sarandos was in Washington, D.C. earlier Thursday in an effort to lobby Trump administration officials on the deal, which Netflix had a merger agreement in place for, amid Paramount’s new $31 per share offer.

“The transaction we negotiated would have created shareholder value with a clear path to regulatory approval,” Netflix co-CEOs Ted Sarandos and Greg Peters said in a joint statement issued Thursday, less than two hours after Warner Bros. Discovery revealed its board’s new decision. “However, 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. Warner Bros. is a world-class organization, and we want to thank David Zaslav, Gunnar Wiedenfels, Bruce Campbell, Brad Singer and the WBD Board for running a fair and rigorous process. We believe we would have been strong stewards of Warner Bros.’ iconic brands, and that our deal would have strengthened the entertainment industry and preserved and created more production jobs in the U.S. But this transaction was always a ‘nice to have’ at the right price, not a ‘must have’ at any price.”

The statement continued: “Netflix’s business is healthy, strong and growing organically, powered by our slate and best-in-class streaming service. This year, we’ll invest approximately $20 billion in quality films and series and will expand our entertaining offering. Consistent with our capital allocation policy, we’ll also resume our share repurchase program. We will continue to do what we’ve done for more than 20 years as a public company: delight our members, profitably grow our business, and drive long-term shareholder value.”

The now-dead Netflix deal, which included buying Warner Bros. and HBO Max, was valued at nearly $83 billion. Paramount’s latest bid, submitted Feb. 24, was an approximately $111 billion bid for the entirety of WBD, including its linear cable channels.

In a statement, WBD CEO David Zaslav tried to put a positive spin on the extraordinary turn of events, citing Netflix co-CEOs Sarandos and Greg Peters and chief financial officer Spencer Neumann.

“Netflix is a great company and throughout this process Ted, Greg, Spence and everyone there have been extraordinary partners to us. We wish them well in the future,” Zaslav said. “Once our Board votes to adopt the Paramount merger agreement, it will create tremendous value for our shareholders. We are excited about the potential of a combined Paramount Skydance and Warner Bros. Discovery and can’t wait to get started working together telling the stories that move the world.”

Samuel A. Di Piazza, Jr., Chair of the Warner Bros. Discovery Board of Directors added, “I am extremely proud of the rigorous process this Board has run over the past five and a half months that has led us to the cusp of combining these two storied companies and the excitement it will bring to audiences for many years to come.”

Among the parts of Paramount’s new bid that the Warner Bros. Discovery board says it found more favorable to Netflix’s offer were the increased purchase price to $31 a share in cash; increasing the regulatory breakup fee to $7 billion in the event the transaction does not close due to regulatory matters; Paramount reaffirming it will pay the $2.8 billion termination fee which WBD would be required to pay to Netflix to terminate the existing Netflix merger agreement.

Hollywood insiders were left reeling by the swift about-face in Netflix’s plan to become even more deeply ingrained in the traditional film and TV business. Now, the reality that one of Hollywood’s foundational studios, the mighty Warner Bros., and the pioneering brand of pay-TV, HBO, are about to be absorbed by another legacy studio is sinking in. Given the significant overlap of operations in film and TV production and programming, the industry is bracing for another big round of job losses.

There are many unknowns about how Warner Bros. Discovery will operate under Paramount’s ownership. Paramount’s triumph in the bidding process almost means that WBD will no longer spinoff its linear cable channels into a separate company that would have been called Discovery Global. It was WBD’s plan to spinoff the cable channels that ignited the auction process around the studio last fall. WBD’s intention to shed its linear channels was the factor that spurred Netflix to get serious about buying Warner Bros. and HBO.

Now, WBD’s significant collection of cablers — including CNN, TNT, TBS, Cartoon Network, Discovery Channel, Animal Planet, Food Network and HGTV — will presumably be folded into the existing Paramount linear channels group headed by George Cheeks, who also oversees CBS.

More to come