Is the “streaming bidding war” coming to an end? Warner (WBD.US) board supports Netflix's intention to reject Paramount's hostile takeover

The Zhitong Finance App learned that some media quoted information revealed by people familiar with the matter as reporting that Warner Bros. Exploration (WBD.US) plans to reject the “hostile takeover offer” proposed by Paramount Tianmu (PSKY.US) due to concerns about financing arrangements and other terms. People familiar with the matter said that after reviewing and evaluating Paramount's bid, the Warner Bros. board of directors will urge shareholders to reject the proposed takeover; those familiar with the matter requested anonymity in order to discuss confidential information. They said the board of directors still believes that the value, certainty, and terms provided by the company's existing agreement with streaming media leader Netflix (NFLX.US) are superior to the plan proposed by Paramount Sky Dance.

People familiar with the matter added that Warner Bros.'s response documents to the Paramount takeover may be submitted as early as Wednesday local time. People familiar with the matter said that the two parties have yet to make a final decision, and the situation is still changing. Representatives for Warner and Paramount declined to comment.

According to reports, one major sticking point is Warner Brothers' concerns about Paramount's proposed financing plan; Paramount is headed by David Ellison (David Ellison), the son of the founder of Oracle.

The equity funds are backed by a trust that manages the wealth of his father, billionaire Larry Ellison (Larry Ellison), the founder and chairman of Oracle. People familiar with the matter said that since it is a revocable trust, its assets can be withdrawn at any time; if this happens, Warner Bros. may have no recourse.

A Paramount funder announced its withdrawal from the deal on Tuesday. Affinity Partners, led by US President Trump's son-in-law Jared Kushner (Jared Kushner), revealed to the media that it was withdrawing support for the proposed blockbuster deal, adding that the reason for the withdrawal was the participation of “two strong contenders.”

People familiar with the matter said Warner's board of directors is also concerned about the company's ability to conduct business alone while the sale takes a year or more to obtain regulatory approval. People familiar with the matter said that Paramount did not provide Warner with sufficient flexibility to operate the business or manage the balance sheet.

Paramount said in an official filing last week that it has responded to Warner's concerns about the company's flexibility in refinancing debt and the $5 billion cancellation fee; the cancellation fee will be endorsed by the Ellison family.

Paramount also adjusted its bid terms in other ways to meet Warner's requirements. Approximately $1 billion of financing from China's Tencent Holdings Ltd. (Tencent Holdings Ltd.) has been withdrawn due to concerns that the funding may raise national security concerns among US regulators.

According to information, Warner initially agreed to sell its studio, streaming media business, and HBO business to Netflix at a transaction price of 27.75 US dollars per share (or about 83 billion US dollars in total market value including debt), putting an end to the “super bidding war” between Netflix, Paramount, and Comcast Corp. (Comcast Corp.) that continued for several weeks against Warner. Warner also plans to split cable television networks such as CNN and TNT to its shareholders before Netflix's proposed deal is completed.

Paramount, which owns MTV and Paramount+ streaming services, has proposed to buy all of Warner's shares at a price of $30 per share (or more than $108 billion, including debt). Just three days after Netflix and Warner announced the proposed acquisition deal, Paramount directly proposed its acquisition plan to shareholders by initiating a public tender offer for Warner shares.

Paramount said its $30 per share offer for Warner Bros. was not its “best and final” offer, implying that there is still room to raise its bid. By the close of the US stock market on Tuesday, Warner's stock price in New York closed at $28.90, which indicates that some investors expect the company to get a higher valuation.

Warner's preliminary agreement with Netflix prohibits them from actively soliciting proposals from other bidders, but allows them to accept proposals submitted externally. According to the agreement between the two parties, if a better plan appears, Warner must give Netflix the opportunity to match the higher offer to try to keep the existing transaction intact.

For Warner, whose acquisition is more in line with the company's prospects?

Recently, authoritative media revealed that Warner's board of directors tends to believe that the Paramount plan is inadequate in terms of financing reliability (including structural concerns such as endorsements from Ellison family trusts) and operating and balance sheet flexibility during the transaction period, so it is preparing to recommend that shareholders reject it. On December 16, EST, Affinity Partners related to Jared Kushner was confirmed by several media outlets to withdraw support for the Paramount Plan, further amplifying market concerns about “co-funder stability.”

If “implementability+strategic determinity+risk-adjusted value” is used as a measure of “more in line with the future,” then Warner clearly favors the Netflix plan: it is already a signed agreement endorsed by the board of directors, and the consideration structure and delivery path (including split arrangements) are more clear; at the same time, Netflix, as the absolute leader in the streaming media field with a larger scale and stronger cash flow, can more directly transform Warner Bros.'s many content assets and popular IPs (HBO/movie and TV libraries, etc.) into global subscription and monetization capabilities.

In contrast, although the price of Paramount Tianwu is ostensibly higher ($30 in cash is proposed), it faces a more obvious execution risk premium under the current information collection: the financing structure and stability of funders are being questioned, and it still has to go through a period of regulatory approval and operational uncertainty that may “drag on for more than a year”; the Warner Bros. board of directors is also clearly more concerned about its financing and terms. Unless Paramount further significantly improves financing certainty, flexible terms, and regulatory pathways, a “higher offer” will not necessarily equal “better development prospects.”

For Netflix, if it successfully swallows Warner, it will have an extremely large IP library

First, for Netflix, a successful acquisition of Warner Bros. (“non-wired assets” under the scope of this transaction, including Warner Bros. Pictures/TV studio tasks, HBO and HBO Max and its film library) essentially means that Netflix will upgrade from “simple platform-based streaming media” to a “platform+ top studio + superfilm/IP” integrated giant, turning high-value content that has long been procured/authorized from abroad into long-term assets that can be controlled automatically.

According to public information, Warner Bros. Exploration's board of directors has agreed and signed a “final/binding agreement” with Netflix. The transaction price is approximately $27.75 per share (cash+Netflix shares), corresponding to a corporate value of about US$83 billion, and it is clear that Netflix will acquire “non-wired assets” such as film/television production and streaming media (including HBO and HBO Max) after Warner completes the business split, and cable network assets such as CNN and TNT are not within the scope of the Netflix deal.

Furthermore, for Netflix, the global streaming superpower that already has a wide range of popular IPs, the streaming media company's content moat and pricing power was significantly enhanced after swallowing down Warner Brothers: it can not only use classic film libraries and long-lived series to increase retention, but also use Super IP to drive new movies, spin-offs, games, licensing, and peripheral monetization; at the same time, it can also incorporate HBO's popular “boutique drama” capabilities around the world and into Netflix's global distribution system.

If the deal is successful, Netflix's popular IPs (according to highlights that have been repeatedly named/listed in public reports) mainly include many fantasy/super IPs, such as Harry Potter/ “Wizarding World” (including “Fantastic Beasts”), DC Universe (Batman, Superman, Wonder Woman, Suicide Squad, etc.), The Matrix series, The Conjuring series, Lord of the Rings series, The Hobbit series, and the Dune series, which are popular around the world, as well as popular IPs such as the HBO ace series universe — such as “The Game of Thrones” (including “The Game of Thrones”)”, “Knights of the Seven Kingdoms”, etc.)