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In its interloping bid for Warner Bros. Discovery, Paramount has spent the last few weeks grappling with two choices: Bump its bid or walk away. Instead, it chose Door No. 3.
The Ellison-backed media company said Tuesday it wouldn’t actually up its bid — yet. Rather, Paramount tacked on a so-called ticking fee, pledging to pay 25 cents a share — or about $650 million — for every quarter the Netflix transaction doesn’t close, beginning by 2027. It also agreed to cover the $2.8 billion fee that Warner Bros. will owe to Netflix if it walks away from that deal — a sticking point for Warner Bros.′ board, according to people familiar with the matter.
It’s a clever maneuver to get Paramount out of the bind it found itself in: Investors have been expecting a price bump but the company hasn’t wanted to budge, people close to Paramount say. That’s because Oracle’s stock — where the bulk of Ellison’s wealth comes from — has been getting hammered, and Paramount doesn’t want to raise its bid just to find out that Netflix won’t get regulatory approval to buy Warner Bros.
By indicating that Paramount is willing and able to ratchet up the price if it has to, as well as guaranteeing Warner Bros.′ break fee and offering concessions around operations during the closing period, Paramount is betting it can force Warner Bros.′ board to the negotiating table and slow down its rush to set a shareholder vote.
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Paramount’s offer could force Warner Bros. to acknowledge the new bid as a “potentially superior proposal,” and would allow Warner to engage with it without breaking the terms of its merger agreement with Netflix, something Paramount (and many of Warner Bros.′ big investors) have been begging Warner’s board to do for weeks.
Netflix, which flipped its bid from cash-and-stock to all-cash, now has an opportunity to riposte as well: a bump from the streaming giant would settle the conversation in many Warner Bros. shareholders’ minds, although there’s no indication its own shareholders would approve.
Warner is bulking up for antitrust review, hiring trial lawyer Dan Petrocelli, according to people familiar with the matter. Petrocelli successfully beat the Justice Department when it tried to block AT&T’s acquisition of Time Warner.
In the meantime, Netflix faces a battle at the state level as well: Tennessee’s attorney general, among others, has deep concerns about a combined Warner-Netflix, according to people familiar with the matter.
Representatives for Paramount, Netflix, and Warner Bros. didn’t immediately return requests for comment. A spokesperson for Tennessee’s attorney general declined to comment.
Rohan’s view
It’s a brilliant bit of strategy from Paramount, which is understandably worried about overpaying for an asset that it put into play. The antitrust sentiment in DC toward Netflix, while muddied, isn’t necessarily favorable, and individual states will no doubt want to make their own voices heard in the coming weeks.
By putting paper to their wallet and trying to mitigate the outstanding issues communicated by Warner Bros. publicly and privately, Paramount is daring Warner Bros.′ board to stay quiet.
Room for Disagreement
Paramount has talked often — and loudly — about how deep its pockets are, and has expressed supreme confidence in its DC chops. On Tuesday, the company again reiterated that Larry Ellison is personally standing by to guarantee $43 billion covering the financing of the deal. But with President Donald Trump saying he’s staying out of the fray, it’ll come down to one thing: the money. It’s do-or-die for Paramount — and a real bump is long overdue.