Paramount’s hostile bid for Warner Bros. is called “cleaner” and “stronger” than Netflix’s offering by analysts
A dramatic turning point occurred during the Warner Bros. sale. Discovery. After Netflix won the bid and officially engaged To purchase the company’s film, television and streaming assets for $82.7 billion, Paramount Skydance stepped in with a hostile offer worth $108.4 billion. David Zaslav and the WBD Board of Directors have 10 business days from the date of submission of the offer to provide a decision to shareholders. Uncertainty around the agreement therefore prevails.
Warner Bros. Will he stay the course and sell to Netflix, or will he find Paramount’s offer more attractive? Paramount CEO David Ellison seems confident that will be the case. Talk to CNBCEllison said: “Look, this is Wall Street, where cash is still king. We’re offering shareholders $17.6 billion more cash than the deal they currently have with Netflix. And we think when they see what’s in our offer right now, that’s what they’ll vote for.”
Ted Sarandos, however, seems just as confident that Netflix will ultimately acquire WBD, saying during a conference in New York: “Today’s decision was completely expected. We reached a deal and we’re really happy with it for shareholders and for consumers. It’s a great way to create and protect jobs in the entertainment industry. We’re confident we’ll get it through.”
Although the two CEOs have divergent opinions on the potential outcome of the hostile bid, analysts seem less conflicted. According to The Hollywood ReporterAlthough some believe Netflix has a better chance of making a successful sale, the prevailing view is that David Ellison’s company has the best deal for Warner Bros. Discovery. The industry spoke with several analysts to get their views on the merits of Paramount and Netflix’s offers, and to discuss which one was most likely to be accepted by WBD.
Before the hostile offer, Bernstein analyst Laurent Yoon seemed to suggest that Paramount would move forward with said hostile offer: “This isn’t a chase, it’s a game of chess with more than one move to consider. Paramount is in a precarious position with new disadvantages. As we’ve said, we remain skeptical about Paramount’s standalone future. The organic path to recovery and growth will be long and arduous.”
However, the analyst warned that Paramount could approach WBD with the same offer that was ultimately rejected before its deal with Netflix was announced: “We remain skeptical that shareholders would view this offer as superior to Netflix’s. At a minimum, it is far from a victory, assuming the board followed a rigorous evaluation process.” According to Business InsiderParamount ended up privately making the same offer it had initially presented.
Kim Chua of OC&C Strategy Consultants said Paramount’s offer was stronger than Netflix’s. Chua called Ellison’s offer “cleaner” and considered it to carry fewer regulatory risks, as it has long been reported that Paramount Skydance would have an easier time gaining approval from regulators than the other two interested parties in the sales process:
“Even though the industry logic behind a Netflix-WBD deal is strong, the industry logic behind a Paramount-WBD deal is stronger. The offering is also cleaner – cash, for the entire company, versus restricted stock, some cash, for select parts of the company – and with less transaction risk – obtaining regulatory approval would be quicker and more likely, with less time for potentially value-destroying “limbo.”
TD Cowen analyst Doug Creutz said Paramount’s offer had advantages both in terms of the money offered (and its amount of cash versus stock) and its chances of coming to fruition:
“We think it is very difficult to argue that Netflix’s offer is better than Paramount’s, both based on the price paid and the likelihood of completion. Paramount’s offer has the advantage of being all cash compared to Netflix’s cash/stock consideration, and also eliminates questions about the linear valuation of the network. We believe that at least at the federal level in the United States, Paramount has a better chance of getting the deal approved by regulators (states like the California, as well as the rest of the world, are another matter), due to a closer relationship with the Trump administration.
So, as we mentioned, the prevailing sentiment seems to lean more in favor of Paramount’s offer providing more value to Warner Bros. shareholders. Discovery.
That said, this doesn’t necessarily mean WBD will favor Paramount over the streaming giant, as there could be a point of contention that could put a damper on David Ellison’s plan to convince the company to sell to him. Semafor published a reportstating that one of the main factors leading WBD to reject Paramount’s offer was the source of its funds.
Its financial partners did not change in the face of the hostile takeover bid. As such, assuming the aforementioned report is accurate, it might be unlikely for WBD to return to the negotiating table with a party it has already rejected due to funding concerns.
