Paramount launches hostile bid for the entirety of Warner Bros

Following Netflix’s successful bid to acquire Warner Bros Discovery (Warner Bros) on Friday 5 December, Paramount Skydance (Paramount) has launched a very public and hostile counter-bid addressed directly to the shareholders of Warner Bros. Other than the price (which is a cash offer rather than being comprised of both cash and shares), the most notable distinction between the two bids is that Paramount is willing to acquire Warner Bros’ traditional cable television assets, including the US news network CNN. Paramount, run by David Ellison, has also claimed that its bid is more likely to be approved by competition authorities on the basis that the streaming platform Paramount+ holds a smaller market share. Paramount has emphasised this aspect of their bid following a number of commentators and industry specialists raised concerns over the weekend that the Netflix deal would strengthen its position as the largest global streaming service and put a technology business at the heart of the entertainment industry. In reality, the regulatory authorities will be investigating closely whichever bid is ultimately successful and looking beyond the media frenzy to understand exactly how the acquisition of Warner Bros would impact market share in both the streaming and studio production sectors. So neither deal is clear cut. 

A situation where a losing bidder decides to go public with a counter-offer is relatively rare and it is rarer still to see such offers being played out on the global stage. Paramount claims that the board of directors at Warner Bros “never meaningfully engaged” with its previous six offers, which forced Paramount to circumvent the usual routes and make its offer directly to the shareholders. Are either Paramount or Warner Bros entitled to simply ignore the fact that Netflix won the bid merely days ago? The risk will mostly be with Paramount and the board of directors at Warner Bros to navigate the (likely lengthy) confidentiality and exclusivity provisions that they would have entered into as part of the auction process. Paramount has clearly decided the deal is worth fighting for and risking any breach of the auction process. If the directors of Warner Bros previously received the same or a similar offer from Paramount and decided it was in the company’s best interest to vote in favour of the Netflix bid, there is likely nothing further to do than wait for the dust to settle. However, considering the publicity and political sensitivities around this transaction, Warner Bros will need to carefully consider their next move in order to navigate the political and public opinions on the deal to protect the company’s reputation and be in a position to defend their decision as being in the best interest of its shareholders and consumers. 

The shareholders at Warner Bros will need to carefully consider whether the increased price per share accurately reflects the valuation of Warner Bros’ cable television assets and whether they may prefer to receive a mix of cash and shares in Netflix, a far more profitable business. If 50% or more of the shareholders of Warner Bros decide to vote and accept the Paramount bid, Warner Bros will reportedly be required to pay a $2.8 billion “break-up” fee to Netflix. Therefore, the decision to entertain Paramount’s bid can’t be taken lightly. If the Paramount bid is a new and improved bid in an effort to topple Netflix, the shareholders of Warner Bros may look to Paramount to assist with paying off this break-up fee in order to break the exclusivity provisions with Netflix. Backstopped by the Ellison family and with equity commitments from the sovereign-wealth funds of Saudi Arabia, Abu Dhabi and Qatar, as well as Affinity Partners, the private-equity firm of Jared Kushner, this might be a hurdle that can be overcome as part of the wider discussions.

Paramount’s offer, being made openly and publicly, indicates that this deal will be played out on the global stage for the foreseeable future. We look forward to watching the TV series adaptation in due course.