Warner Bros. Discovery (WBD) and Netflix (NFLX) made headlines late last year when both announced an acquisition deal worth $82.7 billion.

Netflix’s potential acquisition of Warner Bros.’ studio and streaming assets would drastically reshape the entertainment and film industries. And as a result, this has invited regulatory scrutiny and a protracted hostile takeover attempt initiated by Paramount Skydance (PSKY).

Even though the acceptance of the Netflix bid made it seem that the battle for Warner Bros. was done, it seems the bidding war isn’t over yet.

A few weeks ago, Warner Bros. reopened talks with Paramount after the latter submitted a revised takeover bid.

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Warner Bros. Discovery’s (WBD) future direction has been in somewhat of a limbo, despite agreeing to sell its streaming assets to entertainment giant Netflix (NFLX) in December last year.

The deal, which is worth $82.7 billion in total enterprise value, made waves across the entertainment industry because if it passes regulatory hurdles, this would further entrench Netflix’s dominance.

Netflix has a 67-million strong subscriber base, dwarfing rivals like Paramount+ and Disney+ by a wide margin. On top of this, the streaming company has continued to enjoy a strong retention rate, with cancellation rates averaging only 2% since 2023.

Even though Netflix is the clear market leader in its space, Warner Bros.’ streaming assets make for a compelling acquisition because properties of such as HBO Max, Discovery+, DC Studios,  Warner Bros. Motion Picture Group, Warner Bros. Television, and others.

Monumental deals like this tend to invite both enthusiasm and skepticism.

Chief among the skeptics is Paramount Skydance (PSKY), which kicked off the Warner Bros. bidding war after it sent a series of takeover bids last year. 

Unlike Netflix which only targeted streaming assets, Paramount’s takeover play seeks to acquire both  Warner Bros.’ streaming assets and its legacy cable business. And while this offer was worth $30 a share, Warner Bros. ultimately went with Netflix’s bid.

This is due to a combination of concerns regarding Paramount’s financing and Warner Bros.’ belief 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.

A lot has happened since the Netflix deal was announced on December 5 last year.

Days after the announcement, the Ellison-led Paramount made a hostile, all-cash takeover offer to Warner Bros. shareholders at $30 dollars per share. 

Paramount also found an ally in activist investor Ancora Holdings, which believes Warner Bros. failed to adequately engage with and consider Paramount’s offer.

On top of that, the acquisition has received pressure from both regulators and concerned parties due to antitrust concerns. Reports state that the Justice Department is looking into both Netflix’s signed deal and Paramount’s proposed takeover.

Amid all these developments, another wrinkle has been added to this takeover story.

Last week, Warner Bros. reopened acquisition talks with Paramount after the latter submitted an updated offer. 

The terms of Paramount’s most recent bid includes a revised offer of $31 per share, a $7 billion termination fee (should the deal fail to secure regulatory approval), and an additional payout of 25 cents per share per quarter for investors if the deal hasn’t closed, starting January 2027.

And on top of this sweetened deal, Paramount said it would pay the $2.8 billion termination fee should Warner Bros. abandon its deal with Netflix.

Despite reopening acquisition talks, Warner Bros. board emphasized that it still favors Netflix’s bid and that it has yet to conclude whether Paramount’s revised offer could be deemed “superior.” However, as long as it can see a deal could be reached, it would continue to negotiate.  Shareholders were also advised not to take any action in connection with the amended offer.

Reports state that Netflix leadership has not eliminated the possibility of raising its acquisition offer. Should Paramount’s offer be accepted, Netflix would still have the right to match any offer

It will take time and further developments to get a clearer picture of who will acquire Warner Bros., what’s clear is that the reopened talks with Paramount will intensify this bidding war.

And regardless of whoever wins, regulatory scrutiny will remain a top hurdle. This acquisition battle seemed to be over, but it may just be getting started. 

Best regards,

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