The bidding war between Netflix, Paramount Global (through its Paramount Skydance partnership), and Warner Bros. Discovery has taken a more aggressive turn, with Netflix accusing the latter of “misleading” the WBD shareholders regarding the viability of the competing offer.
Media merger war intensifies as Netflix defends vertical deal and questions Paramount
In its sharply worded statement released on February 17, Netflix claimed that the Paramount-Skydance partnership had “mischaracterized” the “regulatory path” for the proposed merger with WBD. In the statement, Netflix claimed that the proposed acquisition between the firm and WBD is largely “vertical” in nature and hence would not run into “regulatory issues.” In contrast, the proposed acquisition between WBD and Paramount Skydance would result in the horizontal integration of two of the largest media conglomerates in Hollywood, which would raise “regulatory concerns” in the areas of theatrical distribution, TV production, and news broadcasting. The clear implication is that the international regulators would scrutinize the proposed acquisition between the two parties and possibly reject the proposal.
Netflix took umbrage with the claim by the Paramount-Skydance partnership that the proposed acquisition between the two parties would “sail through” the regulatory process, claiming that this would not accurately reflect the international antitrust risks.
In spite of these tensions, though, Netflix has agreed to give WBD a limited seven-day waiver, allowing talks with Paramount until February 23. From a strategic point of view, this appears to be an effort to force Paramount to present what they call their “best and final” binding offer. As part of their statement, though, Netflix has emphasized that they are the only ones with an agreement that is signed, recommended by their board, and currently in place. They characterized Paramount’s actions as disruptive “antics.”
The financial risks associated with execution are another area of tension. For instance, Netflix has been wondering whether the financial structure that is backing Paramount, which includes leadership at Skydance and outside capital, can actually support the transaction while keeping its debt levels at reasonable levels. These risks associated with operating income are at the core of Netflix’s arguments about why its offer is superior.
On their part, WBD’s board continues to support the agreement with Netflix, scheduling a shareholder vote for March 20. At the same time, though, they are working with Paramount to determine whether they can present an alternative, better, and actionable offer. Paramount has characterized its latest offer as an all-cash “best and final” bid.
