Last week, Netflix (NFLX) and Warner Bros. Discovery (WBD) shook the entertainment industry when both parties announced an acquisition deal worth $82.7 billion.

Netflix’s acquisition of Warner Bros.’ studio and streaming assets would drastically reshape the entertainment and film industries. As a result, this deal has drawn regulatory scrutiny.

And as it turns out, it seems the battle for Warner Bros. isn’t over.

Paramount just made a hostile tender offer to Warner Bros. shareholders amounting to $108 billion in total enterprise value.

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Last week, Netflix (NFLX) and Warner Bros. Discovery (WBD) grabbed headlines as both parties announced an acquisition deal worth a total enterprise value of $82.7 billion.

As mentioned before, Netflix, the undisputed leader of the streaming space recently made a bid for the streaming and studio assets of Warner Bros., making what was previously a two-horse race into a full-blown bidding war between it, Paramount Skydance (PSKY), and Comcast Corporation (CMCSA).

Paramount was initially considered as the frontrunner because it made a play for both of Warner Bros.’ streaming and cable assets. Also, one of Netflix’s executives previously suggested that the company wasn’t interested in making any acquisition attempt.

However, that changed and Netflix put together an offer for Warner Bros.’ streaming assets. 

The deal between the two entities values Warner Bros’ stock at $27.75, with the acquisition kicking in once Warner Bros. has completed the separation of its studio and streaming and cable operations into two separate companies. 

A breakup fee of $5.8 billion to be paid by Netflix was also included should the deal not push through because of regulatory issues or other complications.

While the $27.75 share price is lower than the $30 offered by Paramount, Warner Bros. believed that the actual Netflix offer was worth around $31 to $32 per share because shareholders would end up owning stocks of both Netflix and Warner Bros.

According to reports Warner Bros. went with Netflix’s offer partly due to concerns about Paramount’s financing, which is reliant on a collection of lenders and equity partners.

This acquisition, should it pass regulatory hurdles, would boost Netflix’s content catalogue and secure its dominance for years to come.

However, this isn’t a done deal yet.

The acquisition has garnered antitrust concerns, with some concerned parties even going as far as filing a class-action lawsuit that seeks to prevent Netflix’s acquisition from pushing through.

Paramount hasn’t given up as well. Days after the announcement of the acquisition, it made a hostile, all-cash takeover offer to Warner Bros. shareholders valued at $30 dollars per share, which amounts to a total enterprise value of $108.4 billion.

Paramount CEO David Ellison argued that its all-cash offer for all of Warner Bros. is a better proposition for shareholders because it will net them more cash.

The tender offer is funded by the Elllison family, RedBird Capital, and debt commitments worth $54 billion from Bank of America, Citi, and Apollo Global Management. 

Warner Bros. has until December 22 to decide on Paramount’s offer. Meanwhile, Warner Bros.’ shareholders have until January 8—unless the deadline is extended—whether to reject or accept the all-cash bid.

In the meantime, Netflix can up its bid while the hostile takeover bid is being taken under advisement. And should Warner Bros. reverse course and go with Paramount’s offer, it would have to pay the streaming giant a $2.8 billion breakup fee.

For now, it remains to be seen how this situation will play out, as it has the makings of escalating into a long, protracted process. Regardless of who wins in this bidding war, it would still have to clear regulatory hurdles.

Until then, investors will have to remain patient and adopt a wait-and-see approach.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research