Paramount has mounted a comeback for the ages.
On Thursday, the entire conclusion of the months-long Warner Bros. Discovery M&A saga played out in a span of hours, a day that started with a trickle of news quickly escalating into a tsunami. Warner Bros. declared Paramount’s amended bid the “superior proposal,” prompting Netflix to throw in the towel shortly after.
For Paramount, this marks an impressive turnaround for a company that was largely written off after lashing out at Warner Bros. for a supposedly unfair bidding process and then launching a hostile bid with seemingly little traction. For months, Netflix had been at the driver’s seat on the deal and cozying up with WBD CEO David Zaslav. But Paramount CEO David Ellison chipped away, getting past the bad blood with a hand from Warner Bros. shareholders to finally get the board’s attention.
“We are pleased WBD’s Board has unanimously affirmed the superior value of our offer, which delivers to WBD shareholders superior value, certainty and speed to closing,” Ellison said in a statement issued before Netflix bowed out.
This also marks a win for Zaslav. He’s seen shares of WBD stock rise 129% since that initial September Wall Street Journal report about Paramount’s unsolicited bid, going from $12.59 to its current trading price just under $29. Paramount’s offer brings that up to $31 a share and covers the break-up fee.
“Once our Board votes to adopt the Paramount merger agreement, it will create tremendous value for our shareholders,” Zaslav said in a statement. “We are excited about the potential of a combined Paramount Skydance and Warner Bros. Discovery and can’t wait to get started working together telling the stories that move the world.”
For Netflix, the regulatory pressure was ultimately too much. President Trump, who has flipped back and forth on his involvement, appeared to put his thumb on the scale over the weekend, calling on Netflix to fire board member and former UN ambassador Susan Rice, a Democrat, or face “consequences.”
The Department of Justice also opened an anti-trust investigation into the Netflix deal, talking to theater owners, filmmakers and producers across Hollywood to gather their input for its review. Netflix Co-CEO Ted Sarandos was in D.C. today meeting with Attorney General Pam Bondi and White House chief of staff Susan Wiles.
Presumably, those meetings did not go well.
“If they are losing faith in the deal and their ability to overcome regulatory/political/business challenges, this is the best path, it allows them to save face and avoid shareholder questions about whether the deal was even worth it originally,” Paul Nary, M&A and strategy professor at the Wharton School of the University of Pennsylvania, told TheWrap, reacting to Warner Bros.’s initial declaration of Paramount’s bid as the “superior proposal.”
Less than 20 minutes later, Netflix issued its statement.
“The transaction we negotiated would have created shareholder value with a clear path to regulatory approval,” Netflix said in a statement. “However, we’ve always been disciplined, and at the price required to match Paramount Skydance’s latest offer, the deal is no longer financially attractive, so we are declining to match the Paramount Skydance bid.”
As the streaming giant has done in countless production deals, it’s driven up the price and walked away. Netflix shareholders will likely be pleased.
“Netflix came to the conclusion that this just wasn’t worth the headache,” Third Bridge senior analyst John Conca told TheWrap. “Ultimately, this is likely a positive for Netflix; they need to focus on delivering on their growth business, most notably advertising, and a big, long drawn out complicated approval process, and subsequent integration could have materially detracted from that, especially given how early days that business is.”
Two positives for Netflix: Shares are up 9% since it bowed out and it no longer needs to show up for a second Senate hearing to discuss the deal — scheduled for what would have been the deadline for Netflix to match Paramount’s offer.
Now it’s Ellison’s turn to face lawmakers skeptical about more media consolidation.
A tale of three earnings
Clearly, Paramount wanted it more. But as both Paramount and WBD’s quarterly results illustrate, a combination of the two media giants won’t necessarily mean an end to their respective woes.
On Wednesday, Paramount reported a fourth-quarter loss of $573 million, more than double its year-earlier loss before the Skydance acquisition. This morning, Warner Bros. posted a fourth-quarter loss of $252 million — which at least was an improvement over its year-earlier loss of $494 million, indicating a turnaround effort finally taking root — but potentially too late.
Between those two companies, that’s a lot of red — a combined $825 million over the last three months of the year.
Paramount’s widening loss is a cause for concern. As Conca noted, its results saw operating income meaningfully fall short of due to its restructuring charges, with no improvement in its legacy businesses, especially with its disappointing film segment.
“Is Paramount management currently equipped to handle an even messier and more arduous integration of assets?” he asked.
Paramount’s big losses show why it’s so desperate to gain access to WBD’s trove of valuable IP and studios business, which it aims to feed into what it envisions as a bigger (hopefully) profitable machine.
But scale isn’t going to solve all of Paramount’s problems, and taking on the kind of debt necessary to close the WBD acquisition will mean it will be at a financial disadvantage from the get go.
Netflix, meanwhile, last month reported quarterly results that yield $2.42 billion in net income, up 29% from a year earlier. It’s in a far healthier financial position, and even if it misses out on franchises like “Game of Thrones” or “Harry Potter,” it still gets to walk away with a $2.8 billion fee for its troubles.
So who had the last laugh?
