Warner considers reopening negotiations with Paramount

Warner Bros. Discovery (WBD) would be considering reopening negotiations on a potential sale to Paramount Skydance (PSKY) after receiving a final modified offer from its rival last week that could lead the owner of HBO Max to consider breaking the merger agreement reached with Netflix.

According to sources familiar with the situation consulted by Bloomberg, some members of the WBD board of directors would be debating whether Paramount could offer a path to a “superior agreement”, which could trigger a second bidding war with Netflix.

While WBD’s governing body has not yet decided how to respond and maintains the binding agreement with the Los Gatos platform, it would be the first time that the Hollywood giant’s board of directors considers that Paramount’s offer could result in a better deal or prompt Netflix to increase its offer.

Warner Bros. agreed last December to sell its eponymous studio and streaming business HBO Max to Netflix in a deal for $27.75 per share, while Paramount, which owns CBS and MTV, is offering $30 per share for the entire company.

Last week, Paramount Skydance improved the conditions of its takeover bid (OPA) for WBD by incorporating a delay fee (‘ticking fee’), which would mean an additional payment depending on the delay in closing, and a termination fee to cover the cost of compensation payable to Netflix if the owner of HBO Max breaks the existing merger agreement, although it maintained the a priori amount of the proposal at around $108 billion (€90.99 billion).

Specifically, to reaffirm its confidence in its ability to obtain antitrust authorization, PSKY has incorporated a commission of $0.25 per share in additional cash for WBD shareholders for each quarter that the proposed transaction has not closed, which would begin to accrue as of January 1, 2027, which would imply an increase of $650 million (€547 million) each quarter.

In this sense, the company led by David Ellison recalled that it has already substantially complied with the “second request” for information from the United States Department of Justice in relation to its offer on WBD while continuing to collaborate constructively with antitrust authorities and other regulators around the world to quickly obtain the necessary regulatory authorizations and approvals, after having already obtained permission from foreign investment authorities in Germany.

On the other hand, Paramount will reimburse the potential financial cost of $1.5 billion (€1.263 million) to WBD associated with its debt exchange offer, which will facilitate the proposed transaction without harming bondholders or WBD “in the unlikely event that the Paramount transaction does not materialize.”

Likewise, Paramount announced that it will finance as an independent payment the termination fee of $2.8 billion (2.36 billion euros) that WBD would owe to Netflix in the event of terminating the agreement with the streaming platform, so “there will be no leakage of value for WBD shareholders,” and said payment will not reduce the reverse termination fee of $5.8 billion (4.884 million euros).

If Warner Bros. finally decides to sit down to negotiate with Paramount again, it must first notify Netflix and if it decides that a potential new offer from Paramount is superior, Netflix would have the right to match it.