Paramount's bid of 108 billion to intercept Netflix fails? Warner is reportedly set to reject the acquisition offer this week

A takeover battle that will determine the future of Hollywood may end with Netflix emerging victorious, as recent reports indicate that the board of Warner Bros. Discovery is prepared to reject the hostile takeover initiated by Paramount.

On Tuesday, the 16th Eastern Time, media reported that insiders revealed Warner Bros. (hereinafter referred to as "Warner") plans to reject the acquisition offer made by Paramount Skydance last week, primarily due to concerns over Paramount's financing arrangements and other deal terms. After review, Warner's board believes that the existing agreement with Netflix is superior to Paramount's proposal in terms of value, certainty, and terms.

Warner is reportedly expected to submit a response to Paramount's takeover offer as early as this Wednesday. This decision will put a halt to the plan by Paramount CEO David Ellison to intercept the deal.

Representatives from both Paramount and Warner declined to comment on the news. Following the announcement, Warner's stock price slightly declined in after-hours trading, while Paramount's stock price fell by more than 1% in after-hours trading.

The acquisition battle began on December 5 when Netflix reached a deal with Warner Bros. Netflix agreed to acquire Warner's studios, streaming business, and HBO for $27.75 per share, totaling approximately $83 billion (including debt). Warner plans to spin off cable networks such as CNN and TNT to shareholders before the deal is completed. Three days later, Paramount launched a hostile takeover directly to shareholders, proposing to acquire all of Warner's assets for $30 per share, with a total price exceeding $108 billion (including debt).

Concerns Over Paramount's Financing Arrangements

On Tuesday, media mentioned that insiders stated Warner's board is primarily concerned about the financing structure proposed by Paramount. Most of Paramount's equity financing is supported by a trust funded by Oracle founder Larry Ellison, the father of Paramount CEO David Ellison. Since this is a revocable trust, assets can be withdrawn at any time, raising concerns at Warner that they may not be able to recoup if such a situation occurs.

Warner's board is also worried that the company's ability to conduct business will be limited during the year or longer waiting for regulatory approval. Insiders said that Paramount has not provided Warner with sufficient flexibility to operate the business or manage its balance sheet.

In a document last week, Paramount stated that it has addressed Warner's concerns regarding refinancing debt flexibility and the $5 billion breakup fee guaranteed by the Ellison family. Paramount also adjusted the bidding terms at Warner's request, including withdrawing the $1 billion financing from Tencent to avoid raising concerns with U.S. regulators.

Paramount Previously Indicated Room for a Higher Bid

Paramount emphasized in its public offer that its $30 per share bid is not the "best and final" offer, suggesting there is still room for a price increase. Warner's stock is currently priced at $29.109, indicating that some investors expect the company may receive a higher bid Paramount previously stated that its all-cash offer provides $17.6 billion more in cash to shareholders than Netflix's deal and has a higher likelihood of receiving regulatory approval. Paramount's offer represents a 139% premium over Warner's unaffected stock price and seeks to acquire all of Warner's assets, rather than just its streaming and studio businesses.

According to the agreement between Warner and Netflix, Warner is not allowed to actively seek other bidding proposals but can accept unsolicited offers. If a superior proposal arises, Warner must give Netflix the opportunity to match it to maintain the existing deal. Sources familiar with the matter said that although no final decision has been made and the situation is still evolving, the Warner board is inclined to maintain its agreement with Netflix.

Paramount's entry into the Warner acquisition battle comes after Trump expressed antitrust concerns regarding the Netflix deal. On the 7th of this month, Trump stated, "This needs to go through a process, and we'll see what happens. But this (deal) involves a large market share, which could be a problem."

Since the news of the acquisition of Warner broke in September, Netflix's market value has evaporated by about $100 billion. If Warner ultimately chooses Paramount's higher offer, Netflix will receive a $2.8 billion termination fee while avoiding complex regulatory scrutiny. The Warner board must formally respond to Paramount's proposal by December 22