Paramount hostile WBD bid to unseat Netflix: What to expect

Paramount Skydance laid out its plan Monday to convince Warner Bros. Discovery shareholders that it’s a better buyer for the company than Netflix. The hostile bid kicks off a tug-of-war that could get complicated.

Paramount has officially launched a tender offer for current WBD shares at $30 per share, all cash. That bid is backed by $41 billion in equity financing. The remainder will be money from RedBird Capital and Jared Kushner’s Affinity Partners. Paramount also has $54 billion in debt commitments from Bank of America, Citi and Apollo Global Management.

Paramount’s tender offer will be open for 20 business days, Paramount Chief Stratey Officer Andy Gordon said during a conference call for investors Monday. Warner Bros. Discovery has 10 days to respond, and after the 20 business days are up, Paramount has the option to extend the deadline to keep the offer open for WBD shareholders, Gordon said.

During this time, any shareholder of WBD can sell its shares to Paramount for $30. If Paramount buys 51% of outstanding shares, it would control the company.

“We do believe the [Paramount] offer should garner meaningful traction,” Raymond James equity analyst Ric Prentiss wrote in a note to clients. “That said, we believe that Netflix is committed to this deal; if [Paramount] seems to be gaining traction, we would not be surprised to see a reaction.”

That reaction could come in the form of an increased Netflix offer, thought Netflix co-CEO Ted Sarandos didn’t mention as much when speaking Monday at the UBS Global Media and Communications Conference.

A prolonged battle could eventually invite lawsuits or proxy fights that would demand full shareholder votes.

The WBD board said in a statement Monday it “is not modifying its recommendation with respect to the agreement with Netflix.” It advised shareholders “not to take any action at this time with respect to Paramount Skydance’s proposal.”

Still, the board will “carefully review and consider Paramount Skydance’s offer in accordance with the terms of Warner Bros. Discovery’s agreement with Netflix, Inc.,” the board said in its statement.

If WBD shareholders seem to be convinced that Paramount’s is the superior bid, Warner Bros. Discovery management could restart friendly discussions with Paramount to make sure it’s getting the best deal possible.

Paramount CEO David Ellison told CNBC’s David Faber on Monday that the company’s $30-per-share offer was not its “best and final,” suggesting Paramount is open to paying more for WBD if discussions began again.

Ellison hopes to convince WBD shareholders that a $30-per-share, all-cash offer is more valuable than Netflix’s $27.75-per-share, cash-and-stock offer for WBD’s streaming and studio assets.

Ellison told CNBC Monday he values the linear cable networks, which aren’t part of Netflix’s bid, at just $1 per share. WBD internally has valued that business at about $3 per share, CNBC previously reported.

If WBD reaches a deal with Paramount, WBD would owe Netflix $2.8 billion as a breakup fee — meaning Paramount may have to increase its bid, or agree to pay the fee, to adjust for the added cost.

Ellison said Monday that Paramount’s odds for regulatory approval, combined with what he views as a higher bid, should sway shareholders that the WBD board made a mistake in choosing Netflix’s offer.

A Netflix-HBO max combination would create a streamer “at such a scale that it would be bad for Hollywood and bad for the consumer,” said Ellison, noting it would be “anticompetitive in every way you fundamentally look at it.”

Sarandos disagreed.

“We’re super confident we’re going to get it across the line and finish,” Sarandos said Monday at the UBS conference.

Sarandos also jabbed Paramount’s estimate of $6 billion in synergies, noting those potential cost cuts would likely mean job losses.

“We’re not cutting jobs, we’re making jobs,” Sarandos said.