Netflix (NASDAQ:NFLX) has significant cash reserves and retains the flexibility to raise its offer for Warner Bros Discovery (NASDAQ:WBD) should rival bidder Paramount Skydance improve its proposal, according to two people familiar with the situation.
The streaming heavyweight and the rival studio have been engaged in a high-stakes contest for Warner Bros and its vast content library, which includes blockbuster franchises such as “Harry Potter”, “Game of Thrones”, DC Comics and Superman.
While Warner Bros is proceeding with a March 20 shareholder vote on Netflix’s proposal, the company has granted Paramount a one-week window to submit a more attractive bid.
Netflix has offered $27.75 per share — valuing Warner Bros’ studio and streaming operations at roughly $82.7 billion — whereas Paramount has proposed $30 per share, or about $108.4 billion, for the entire company, including Discovery Global, which owns networks such as CNN and HGTV.
Both Netflix and Warner Bros declined to comment.
The company behind “Stranger Things” is said to have substantial financial capacity to escalate its bid if necessary, with approximately $9.03 billion in cash and cash equivalents on its balance sheet as of December 31.
Monday deadline looms
Earlier this week, Warner Bros turned down Paramount’s latest hostile approach but invited the competing bidder to submit a “best and final” offer by the end of Monday. Paramount had reportedly drawn the board into discussions after informally floating a $31-per-share proposal.
“Netflix still looks to be in the driving seat, but that can quickly shift,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “Price will likely be the deciding factor — Warner’s concerns around funding and regulatory risk are real, but at a high enough number, they become secondary.”
Britzman added that he expects Netflix would respond to any enhanced bid from Paramount. “But the real twist is that these deals were never apples to apples, and it may ultimately come down to how much value the board and shareholders assign to the network business that Netflix would leave behind,” he said.
Paramount, for its part, confirmed it will continue pursuing its tender offer for Warner Bros, oppose what it described as the “inferior” Netflix transaction, and move ahead with plans to nominate directors at the company’s upcoming annual meeting.
Attention now turns to whether the CBS parent company will increase its offer, which Netflix would have the right to match under the existing merger agreement, according to Warner Bros.
In a letter to Paramount’s board on Tuesday, Warner Bros Chairman Samuel DiPiazza Jr. and CEO David Zaslav wrote that “we continue to recommend and remain fully committed to our transaction with Netflix”.
Board reservations persist
Paren Knadjian, partner at Eisner Advisory Group, said Paramount’s continued pursuit indicates confidence it can ultimately prevail.
“Board level concerns around financing structure, timing and regulatory approval meaningfully detract from the attractiveness of Paramount’s proposal, irrespective of headline valuation,” he said.
Last week, Paramount proposed offering Warner Bros shareholders additional cash payments for each quarter that the deal fails to close beyond this year, and pledged to cover the $2.8 billion breakup fee Warner Bros would owe Netflix if it exited their agreement. However, Warner Bros said the revised terms still fell short of qualifying as a superior proposal in the eyes of its board.
In its letter, the board highlighted several unresolved issues within Paramount’s offer, including who would bear responsibility for a potential $1.5 billion junior lien financing fee, how the transaction would proceed if debt financing were not secured, and whether equity funding led by Larry Ellison was fully committed.