Paramount Says Netflix-Warner Bros. Deal Would ‘Solidify Streaming Domination,’ Threaten the Future of Theatrical Releases

Paramount laid out its argument for its hostile takeover bid on Monday, telling Wall Street analysts that Netflix and Warner Bros. Discovery’s $82.7 billion deal would “solidify streaming domination and end the streaming wars”

The media giant warned that the combined company would have a 43% share of all global SVOD subscribers and over 30% of U.S. subscribers. Executives also said Netflix’s bid would be “harmful to the film and TV industry, undermine creative talent, threaten higher prices for consumers, and threaten the future of theatrical releases.”

Additionally, they argued that the Netflix offer leaves shareholders with stock and a “highly levered global networks business,” exposes them to “volatile Netflix shares that can drive value below headline levels” and has a “highly uncertain regulatory outlook.”

The all-cash tender offer from the David Ellison-led media giant is valued at $30 per share and would be $18 billion more and 29% more cash than Netflix’s, amounting to an enterprise value of $108.4 billion.

It would be fully backstopped by the Ellison family, whose family trust has over $250 billion in Oracle stock; over $41 billion of equity from RedBird Capital Partners, as well as $54 billion in committed debt financing from Bank of America, Citibank, Apollo Global Management and three Middle Eastern sovereign wealth funds. The latter accounts for $24 billion of that financing.

Paramount said that its deal for all of WBD, inclusive of its cable networks, would close in 12 months versus Netflix’s 12 to 18 month timeline and that its committed to “broader and more comprehensive regulatory efforts to get this transaction done – a level of commitment that goes well beyond what Netflix is offering.”

“We’ve heard this category ambiguity argument a lot. And I think we’ve all been doing this long enough to where we respectfully don’t buy it,” Ellison said. “When you look at category ambiguity, saying that streaming is not a market is a little bit like looking at the beverage market and saying that Coke and Pepsi can merge because Budweiser is a replacement to it. It just it doesn’t make sense when you look at it. And it’s not the way regular regulators look at it.”

It also accused Netflix of failing to explain how the debt between the WBD’s global networks and studios streaming business would be allocated. Paramount’s bid would value WBD’s networks business at $1 per share.

“One of the reasons why we are so interested in it and want to acquire it is because when you put it together with our linear business, there are significant synergies and it will also be highly cash flow generative,” Ellison said. “We can use that cash flow to invest in our North Star principles and invest that into more movies, more television series. We’ve said we want to make 30 movies a year exclusively for theatrical. We want to make more original series, invest in sports and invest in our growth businesses.”

If approved, the combined Paramount-WBD would target $6 billion in cost savings aimed at areas such as back office, finance, corporate, legal, technology and infrastructure. It would also have 207 million streaming subscribers and has expressed its commitment for 30+ theatrical releases per year.

“This transaction is about building more, not cutting back, more opportunity for the industry, more choice for consumers, more value for shareholders, and more support for creative talent,” Paramount CEO David Ellison said. “Our focus is on expanding creative output, not dominating the sector as Netflix envisions. Our goal is to make Hollywood stronger in a way that benefits the entire ecosystem.”

Ellison argued that Paramount addressed all of the Warner Bros. Discovery board’s concerns by increasing the value, strengthening the financing and enhancing the regulatory commitments of its bid, but ended up receiving no response and that its previous bid was “not best and final.”

“We’re taking our offer directly to shareholders because they deserve transparency and the ability to make an informed decision,” he continued. “Our proposal is superior to Netflix’s in every dimension: higher headline value, increased certainty in that value, greater regulatory certainty, and a pro Hollywood, pro consumer and pro competition future. We’re confident that once shareholders have the opportunity to choose for themselves, they’ll choose Paramount.”

The tender offer will be open for 20 business days and Warner Bros Discovery’s board will need to respond within 10 business days. Following the 20 business days, Paramount has the option to extend the offer.

More to come…

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