The Battle for Warner Bros: Inside the High-Stakes Bidding War Between Netflix and Paramount Skydance

The resurgent deal boom has finally produced a truly captivating hostile takeover bid.

Shortly after Hollywood giant Warner Bros Discovery Inc. accepted Netflix Inc.'s acquisition offer, Paramount Skydance Corp launched a direct $108 billion proposal to Warner's shareholders. This counterbid presents numerous compelling aspects. It challenges Warner to provide a clear explanation for why it didn't more diligently engage with the Ellison family-backed competitor when a friendly acquisition was being pursued.

The situation had already turned contentious before Monday's surprising development, with Paramount formally protesting to Warner last week about being excluded from the sale process. Paramount's persistence is understandable: merging with Warner would create the world's premier studio with an endless list of valuable franchises including Harry Potter, Barbie, Top Gun, and many more.

Importantly, these competing offers differ substantially in structure. Netflix proposes $27.75 per share for Warner's studio and streaming assets, primarily in cash but including $4.50 per share in Netflix stock. Warner shareholders would also retain ownership of the soon-to-be-spun-off cable television assets. Effectively, shareholders receive some cash plus two different stocks, one of which hasn't yet been valued by public markets.

Barclays Plc analysts estimate the cable business at approximately $4.20 per share, making Netflix's complete offer worth about $32 per Warner share.

Conversely, Paramount is offering $30 per share in cash for Warner's entire business. CEO David Ellison – son of Oracle Corp. founder Larry Ellison – contends this proposal surpasses Netflix's offer. His reasoning? He values Warner's cable assets at just $1 per share. This assessment seems particularly harsh, but such aggressive valuation tactics are characteristic of hostile takeovers, which often involve increasingly negative characterizations.

Where Paramount clearly outshines Netflix is in offering a more expeditious and certain path to completion. Netflix's proposal requires significant discounting due to anticipated antitrust scrutiny, given the enormous scale of a combined streaming platform uniting Netflix with Warner's HBO. President Donald Trump has already expressed concern about Netflix's expanded market dominance. Overall, Netflix's payment appears less certain and further delayed – thus less valuable in real terms.

Ellison's proposal presents fewer serious antitrust concerns and comes with political advantages, including partial financing from Affinity Partners, led by the president's son-in-law, Jared Kushner. Combined with support from Middle Eastern sovereign wealth funds, Paramount is following the successful strategy demonstrated in Electronic Arts Inc.'s leveraged buyout, which involved Silver Lake Management collaborating with Affinity and Saudi Arabia's Public Investment Fund.

As TD Cowen analysts note, it's difficult to argue that Netflix's offer is superior. Is it time for concluding credits? Not quite yet. Additional developments may emerge. Paramount would undoubtedly prefer reaching a negotiated agreement with Warner, as less confrontational options typically offer greater value. Paramount has already indicated willingness to negotiate. Achieving a mutual agreement might require additional incentives, providing Warner justification to switch allegiance – and contribute to Netflix's break fee.

However, having progressed this far, it would be unexpected if Netflix abandoned such a strategically important transaction without resistance. With a $400 billion market value and substantial cash flow, Netflix likely has the financial capacity to enhance or simplify its more complex proposal. Netflix's continuing stock decline following Paramount's intervention suggests investors anticipate a costly bidding war.

Paramount appears capable of justifying further financial stretch. It has indicated greater cost-saving potential at $6 billion annually compared to Netflix's $2.5 billion (likely due to additional opportunities from retaining Warner's legacy television business). Bloomberg Intelligence suggests a deal at $35 per share would remain viable for Paramount. Moreover, David Ellison may simply want this acquisition more intensely.

The responsibility now falls equally on Warner CEO David Zaslav and Netflix to respond. Zaslav's defensive strategies have driven the bidding to an impressive level thus far. Warner must now either engage with Paramount or provide a compelling explanation for choosing a Netflix-oriented future.

Disclaimer: These are the personal opinions of the author.