Paramount ratchets up competition for Warner Bros. but still falls short
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Warner Bros. Discovery is under new pressure this morning to switch horses from Netflix to Paramount, although it still appears to be waiting for a price sweetener.
Driving the news: Activist investor Ancora Partners disclosed around a $200 million stake and argued that the Paramount bid provides more price and regulatory certainty.
Catch up quick: This comes a day after Paramount offered to cover a $2.8 billion termination fee that WBD would owe to Netflix if it terminated the current agreement.
- Paramount also said it would cover a potential $1.5 billion in debt refinancing costs and to provide WBD shareholders with a 25-cent-per-share ticking fee for every quarter the deal doesn't close beginning next January (totaling around $650 million per quarter).
- Quick reminder that Paramount is offering to buy all of WBD, while Netflix would buy WBD's studio and streaming assets with its cable networks being spun off into an independent public company.
The big picture: WBD and Paramount are in a fairly silly standoff.
- Paramount knows it will have to increase its $30 per share offer to at least $32 per share, but thus far refuses to do so until the WBD board agrees to reopen discussions. David Ellison apparently bristles at the idea of bidding against himself, and the Ancora move might further stiffen his spine.
- WBD CEO David Zaslav could probably get the price bump if he picked up the phone, but so far seems to be getting his board's other concerns addressed without doing so. WBD also is worried that engaging with Paramount could complicate internal efforts to split off the cable business, which still is slated to occur this summer, in the case that it sticks with Netflix.
Behind the scenes: The U.S. and global regulatory issues are perhaps a wash at this point.
- Yes, President Trump is buddies with Larry Ellison — and Netflix CEO Ted Sarandos was grilled on the deal last week at a U.S. Senate hearing — but Trump also has been increasingly critical of Paramount's CBS.
- Paramount is pushing DOJ to complete its antitrust review this month, although even a green light doesn't mean that DOJ couldn't later sue to block.
- For WBD, the biggest regulatory issue might be timing. Assuming both bids would require lengthy reviews by dozens of regulatory bodies, the Netflix one might provide a bit more certainty because it enables the cable split to proceed. WBD also still seems concerned about Paramount's leverage — and what happens if the global economy craters in the meantime — although the debt commitments seem pretty tight.
What they're saying: WBD issued the following statement, in apparent response to Ancora:
"WBD's experienced and independent Board and management team have a proven track record of acting in the best interests of the Company and shareholders – as evidenced by the extensive actions they have taken to unlock the full value of WBD's unmatched portfolio of assets over the last year. We remain resolute in our commitment to maximize value for shareholders."
The bottom line: It feels like the next act already has been written. The "Davids" get over themselves, Paramount raises its bid and then Netflix has a decision to make. Right now we're just in an intermission.
