The streaming and entertainment industry has seen one of the most high-risk, large-scale transactions to date, surprising industry observers. Not only will this be of historic proportions, it is expected to be disruptive to Hollywood and the media business as we know it.
Warner Bros. Discovery is considering a major strategic shift that could include selling its entertainment assets to one of its rivals after struggling with billions of dollars in debt due to declining cable viewership and fierce competition from streaming platforms.
Several major companies have looked at the possibility of acquiring the media giant, and last December, Netflix announced it would acquire WBD’s studios and streaming for $82.7 billion.
But this month, in a surprising 11th-hour turn, David Ellison-run Paramount acquired Warner Bros., including the studio, HBO, streaming platforms, games, and TV networks like CNN and HGTV. By offering $111 billion to acquire all of Discovery’s assets, it looks like it might actually be the winner of this bidding war. Paramount was recently acquired by Ellison, with significant support from Larry Ellison, chairman of Oracle, the world’s sixth-richest man and a major Trump donor.
Paramount’s proposal still awaits formal approval from WBD’s board of directors, and the potential agreement may face pressure from regulators.
Let’s analyze in detail what is happening now, what is at stake and what will happen next.
What happened so far?
It all started last October, when Warner Bros. Discovery (WBD) revealed that it was exploring a potential sale after receiving unwanted attention from several major players in the industry.
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The bidding process quickly became competitive, with Paramount and Comcast emerging as serious contenders, with Paramount initially seen as the frontrunner.
But WBD’s board ultimately decided that an offer from streaming giant Netflix was the most attractive. Netflix offered $82.7 billion for Warner’s film, TV and streaming assets.
And so a bidding war began. Paramount believed its roughly $108 billion bid for all of Warner’s assets was superior to Netflix’s offer, which focused only on studios and streaming. To facilitate the deal, Netflix signed a contract with Warner Bros. in January. The agreement was amended to include Discovery’s all-cash offer for $27.75 per share, further reassuring investors and clearing the way for the deal to proceed.
Paramount continued to attempt to acquire WBD. But Warner’s board has repeatedly rejected the offer, citing concerns about Paramount’s excessive debt load and the increased risks associated with the offer, including concerns about the group of investors funding Paramount’s bid, including Saudi, Qatari and Abu Dhabi sovereign wealth funds. The board noted that Paramount’s proposal would have forced the combined company to take on $87 billion in debt, a risk it could not afford at the time.
In January, Paramount filed a lawsuit demanding more information about the Netflix deal. A month later, the company attempted to sweeten the deal by announcing that it would offer WBD shareholders a “ticking fee” of $0.25 per share for each quarter the deal does not close by December 31, 2026. It also said Warner would pay a $2.8 billion installment fee if it backed out of its deal with Netflix.
Paramount then increased its offer to $31 per share in February in a final attempt to close the deal. This led the WBD board to consider this a superior proposal and extend discussions with Paramount regarding a potential agreement. Netflix refused to increase its bid and withdrew from negotiations.
“The transaction we negotiated would have created shareholder value with a clear path to regulatory approval,” Netflix co-CEOs Ted Sarandos and Greg Peters said in a Feb. 26 statement. “However, we have always been disciplined and we decline to respond to Paramount Skydance’s bid because, at the price required to meet Paramount Skydance’s recent offer, this transaction is no longer financially attractive.”
Paramount will also assume about $33 billion in debt held by Warner Bros. Discovery under the deal, in addition to the billions of dollars in debt it already holds. The deal will be backed by $54 billion in debt commitments from Bank of America Merrill Lynch, Citi and Apollo Global Management and $45.7 billion in equity from Larry Ellison.
Regulatory hurdles and other issues
In addition to assuming significant debt, which creates a significant financial burden, Paramount faces several other hurdles in the WBD deal that could impact the success of the deal.
First, Ellison warned that significant job losses are expected in the near future. There was already widespread concern among critics about potential job losses and falling wages.
Ellison is also a controversial figure in the industry, and his ownership of CBS News has been seen as being sympathetic and supportive of the Donald Trump administration, of which his father, Larry Ellison, is a major donor. With Ellison owning Paramount, reporting critical of the government was either withheld or came under increased scrutiny from Ellison or his appointed head of CBS News, the conservative firebrand Bari Weiss.
This raised concerns among employees at Warner-owned CNN. Trump privately sought concessions from news departments critical of him, including a $16 million settlement from CBS, before the FCC approved Ellison’s purchase of Paramount. Before Netflix broke the deal, Trump pressured the company to fire Susan Rice, a former Biden White House official, from its board of directors. He has publicly stated his intention to bring CNN under new ownership.
Regulatory scrutiny is another obstacle. These large-scale mergers attracted the attention of lawmakers.
For example, California Attorney General Rob Bonta said in a statement on February 26, “These two Hollywood giants have failed to withstand regulatory scrutiny. The California Department of Justice is conducting an open investigation and we plan to conduct an active review.”
A day before Netflix pulled out, it was revealed that a coalition of 11 state attorneys general had urged the U.S. Department of Justice (DOJ) to review the merger over concerns it would stifle competition and raise subscription prices. This comes months after U.S. Senators Elizabeth Warren, Bernie Sanders, and Richard Blumenthal raised concerns with the Justice Department’s antitrust division and warned that such a large merger could have serious consequences for consumers and the industry as a whole. The senators argue that the merger would give the new media giants excessive market power, which could raise prices for consumers and stifle competition.
That said, Ellison’s father, Oracle Chairman Larry Ellison, is a significant Trump donor and has close ties to the Trump administration. Last year’s deal to acquire Paramount closed quickly after acquiring C.
When is the transaction expected to close?
The deal is not final yet.
Initially, the deal with Netflix was expected to lead to a shareholder vote around April, and the deal was expected to be completed within 12 to 18 months after the vote. However, the move to a Paramount deal will likely result in a new timeline for approval. Additionally, regulatory approval is still pending and scrutiny may determine the final outcome.
Stay tuned…
