Paramount Offers $650M Incentive to Win Warner Bros. Deal

Paramount Escalates Pursuit of Warner Bros. Discovery with "Ticking Fee"

The ongoing competition for Warner Bros. Discovery Inc. intensified Tuesday as Paramount Skydance Corp. introduced a significant financial incentive to expedite regulatory approval of its acquisition bid. The company announced a quarterly “ticking fee” of $650 million, applicable to any period beyond 2026 where the $108.4 billion all-cash offer remains pending. This move underscores Paramount’s confidence in securing swift and favorable regulatory clearance. The $0.25 per share fee is designed to highlight this expectation.

Furthermore, Paramount confirmed it will also honor a $2.8 billion termination fee should Warner Bros. Discovery ultimately decline the current $82.7 billion all-cash agreement with Netflix Inc. This demonstrates the company’s commitment to the deal, despite facing repeated rejections from the Warner Bros. Discovery board. The escalating situation highlights the complex dynamics at play in the media landscape.

A Superior Offer and Commitment to Shareholder Value

Paramount Chief Executive David Ellison emphasized the value proposition of their offer in a recent statement. “The additional benefits of our superior $30 per share, all-cash offer clearly underscore our strong and unwavering commitment to delivering the full value WBD shareholders deserve for their investment,” he stated. Ellison further noted the offer provides shareholders with certainty in value, a clear regulatory path, and protection against market volatility.

Following the announcement, market reactions were mixed. Warner Bros. Discovery’s shares experienced a slight increase, closing Tuesday at $27.8 per share, a 0.43% rise. Paramount’s stock also saw a modest gain, up 0.65% to close at $10.84. Conversely, Netflix’s shares dipped by 0.62% to $82.21. All three companies have faced declines over the past month, with Netflix experiencing the most significant drop at 10.94% and Paramount at 9.38%.

The Battle for Warner Bros. Discovery: A Timeline of Events

The current situation stems from a series of events that began last September when Paramount initially presented an unsolicited offer to acquire Warner Bros. Discovery at $19 per share. The landscape shifted significantly in December when Netflix solidified a definitive agreement to acquire the streaming and studios assets of Warner Bros. Discovery for $72 billion in equity value. This deal also includes retained equity in Discovery Global, a planned spinoff of Warner Bros. Discovery’s cable and network assets.

Paramount subsequently launched a direct tender offer to shareholders at $30 per share and initiated legal action against the Warner Bros. Discovery board, alleging a failure to disclose crucial financial information. The company has also threatened a proxy boardroom battle, potentially occurring as early as April, to exert pressure on the board.

Comparing Deals and Questioning Valuation

Paramount has actively compared Discovery Global to Comcast Corp.’s Versant Media Group Inc., arguing that a similar performance trajectory for Discovery Global would result in a significantly lower value for Warner Bros. Discovery’s shareholders under the Netflix deal. According to Paramount, “Assuming both a multiple and leverage ratio in line with Versant, Discovery Global’s equity value would be ~$3.55 per share, resulting in a total package value of only ~$26.75 for the Netflix deal.” They further asserted that Paramount’s $30.00 all-cash offer represents a 12% increase.

Stakeholder Concerns and Regulatory Scrutiny

Despite repeated rejections, Paramount’s offer has garnered support from some stakeholders. Pentwater Capital Management, a significant shareholder in HBO’s parent company, has publicly criticized the board for overlooking what it deemed a superior offer. Activist investor Ancora Holdings Group has also voiced opposition to the Netflix merger, acquiring a $200 million minority stake in Warner Bros. Discovery and potentially increasing its holdings to encourage negotiations with Paramount.

The proposed Netflix-Warner Bros. megamerger is also facing increased scrutiny on Capitol Hill. The Senate Judiciary Committee held a hearing Tuesday to examine the potential impact of the deal on consumers and the broader market as Netflix expands its influence in the entertainment industry. Sen. Cory Booker (D-New Jersey) expressed concerns regarding the consolidation of a “one of the largest content producers” and “one of the largest distributors,” highlighting potential implications for artists and artistic expression. Netflix Chief Executive Ted Sarandos assured the panel that the company would support theaters and continue to foster the growth of the American entertainment industry.