Ever since we last covered Netflix’s acquisition of Warner Bros. Discovery (WBD), the streaming giant’s US$72 billion deal has gotten much less certain. Paramount Skydance, which owns Paramount Pictures, was one of the original bidders for WBD, and countered Netflix’s deal with a hostile US$78 billion offer of their own (US$108.4 billion in total enterprise value).
Now, Larry Ellison, father of Paramount Skydance CEO David Ellison, has stepped in, personally guaranteeing US$40.4 billion in equity financing to push the deal through.
This is significant in a few ways, not least because it addresses a major concern from the Warner Bros. board of directors. For context, shareholders were originally advised by the board to reject Paramount’s hostile offer for, among other reasons, the lack of a “full backstop” – in other words, the board was sceptical that Paramount could securely finance its offer, and believed it had “misled” shareholders into thinking it could.
Paramount has repeatedly demonstrated its commitment to acquiring WBD. Our $30 per share, fully financed all-cash offer was on December 4th, and continues to be, the superior option to maximize value for WBD shareholders.
Ellison’s guarantee addresses this issue, specifically the lack of an “Ellison family commitment of any kind”. Paramount, in its amended offer, also matched its breakup fee – what it would pay to shareholders should the deal fall through – to US$5.8 billion, matching Netflix’s offer. Its actual cash offer, however, stayed at US$78 billion.
At this point, it should be noted that Larry Ellison, co-founder and former CEO of enterprise tech company Oracle, is worth US$250 billion, according to Forbes. While US$40.4 billion is only a portion of his wealth, it’s a substantial number to put on the line for a single offer.
On its part, WBD’s board stated that it was reviewing Paramount’s amended offer, but as of now still recommends shareholders to follow through with Netflix’s deal. Undeterred by Ellison’s guarantee, Netflix has begun refinancing the bridge loan it took to acquire Warner Bros., an effort to make sure the debt it incurs in the deal is investment grade.
The historic studio’s next owner, however, is still up in the air. Shareholders have until 21 January to respond to Paramount’s offer, and even if Netflix emerges the victor, it’ll likely have to face multiple regulatory hurdles to close the deal.
It’s still hard to say what the practical effects of either parties acquiring Warner Bros. may be. We do know that Netflix intends to incorporate films and shows from the HBO library into its own catalogue, should WBD follow through with it. However, any potential Netflix price increases (not to mention any ramifications on workers in the industry) are still uncertain.
