Netflix flashes the cash to end Hollywood’s bidding war
Netfix is reportedly readying an all-cash offensive to secure its long-awaited $83bn takeover of Warner Bros, in a move set to kill off a persistent hostile bid from rival Paramount Skydance.
The Los Gatos streaming giant is set to snub the cash and stock bid in favour of a simpler, hard-currency deal, as it aims to pacify WB shareholders.
Under the set out in December, investors were promised a cocktail of $23.25 (£17.29) in cash, and a slice of Netflix stock – a recipe that quickly curdled after Netflix’s share price nosedived 12 per cent following the announcement, effectively dragging the value of the offer down with it.
By ditching the equity portion of the pact, Netflix is hoping to fend off David Ellison’s Paramount, which entered the ring with its owmn $108.4bn all-cash offer.
Paramount’s bid came with a $40bn personal guarantee from Ellison’s own father, Oracle boss and billionaire Larry Ellison, as a means to soothe concerns over the scale of debt required for the transaction.
The Ellison headache
While Netflix is targeting the firm’s creative core, with the likes of Warner Bros Studios, HBO, and its DC offerings, Paramount’s bid covers the entire conglomerate.
This includes the ‘linear’ cable networks like CNN and the Cartoon Network.
Warner Bros’ board has repeatedly rejected Paramount’s bids, describing its offers as an “inadequate” leveraged buyout that may saddle the combined firm with excessive debt.
Paramount, on the other hand, has escalated its tactics.
On Monday, it launched a lawsuit in Delaware seeking to force Warner Bros to disclose the full financial details of the Netflix agreement, and announced plans for a proxy fight to replace WB directors with a slate more open to the Ellison bid.
This shift to an all-cash offer suggests that Netflix leadership is looking to simplify the transaction, and remove the valuation gap that paramount has used to woo sceptical shareholders.
The move has been seen as intending to speed up the separation of WB’s studios from its slowly declining cable assets, which may be spun off into a separate entity.
Market jitters and regulatory hurdles
Wall Street has greeted the potential move with a tentative thumbs up, with WB shares climbing 1.6 per cent on Tuesday, ad investors weighed the certainty of cash against the volatility of streaming stocks.
Netflix shares also edged up one per cent, despite the prospect of the streaming giant taking on massive debt to fund the hard cash pivot.
But the ‘Netflix-Bros’ tie-up still faces huge regulatory scrutiny, with US politicians, namely Donald Trump, raising antitrust concerns and warning that a combined entity would control a huge share of the market.
Netflix has already confirmed it is engaging with the Department of Justice to navigate these mounting concerns.
Still, under Netflix’s new terms, the deal remains a significant strike on WB’s most valuable assets.
And meanwhile, Paramount continues to argue that its $30 per share offer is superior, alleging that the planned spin-off of WB’s cable networks would leave shareholders holding worthless equity.
With Paramount setting a deadline on 21 January for shareholders, the clock seems to be ticking on Hollywood’s biggest ever monopoly game.
If Netflix fails to close the deal with its suitcase full of cash, it could find that even offering up its prestige library can’t save it from an Ellison-led coup.