Paramount on Monday made a $77.9 billion hostile takeover bid for Warner Bros. Discovery, escalating its fight for the entertainment company against Netflix by bringing its case directly to Warner shareholders.
Netflix on Friday agreed to buy Warner Bros. for $72 billion after Warner splits its studios and HBO Max streaming business from its cable networks. The announcement sent shock waves across Hollywood and Wall Street alike, as many had anticipated that David Ellison’s Paramount had the upper hand.
With Ellison’s tender offer launched Monday, here’s what to know about how the drama could play out:
Why did Paramount make a tender offer?
A tender offer makes a direct appeal to shareholders to sell, or “tender,” their shares at a set price. They are often employed when the target company’s board won’t engage. Paramount on Monday accused Warner of not meaningfully engaging with any of its six takeover proposals made over the past 12 weeks.
Tender offers give shareholders a deadline for participating that can often be extended. Warner’s shareholders have until Jan. 8 to decide whether to accept Paramount’s $30 a share all-cash bid, unless the deadline is extended.
If a tender offer looks like it has widespread support, boards of the company being sold tend to capitulate and negotiate a deal before the deadline.
Warner has said it is reviewing Paramount’s offer and meanwhile continues to recommend that shareholders support its deal with Netflix, which they will get to vote on at a later date.
The Netflix deal is worth $27.75 a share and includes a small portion of Netflix shares as consideration. But Warner believes it is worth closer to $31 to $32 when considering its shareholders would also continue to own shares in Warner’s cable networks after its split, The Wall Street Journal has reported.
Paramount could also decide to raise its offer before the tender offer expires.
What does Warner do next?
The company has 10 business days, or until Monday Dec. 22, to convene with advisers and decide whether or not Paramount’s bid is a superior offer to Netflix’s deal.
If it deems Paramount’s superior, it is likely to begin negotiations with Paramount on a deal while giving Netflix four business days to respond with a counteroffer.
In addition to the numbers, Warner will consider attributes such as each deal’s ease of obtaining regulatory clearance from the Trump administration and each suitor’s financial backing, among other things.
Warner, meanwhile, will likely be facing countless investor questions regarding how the bidding process played out, and potential litigation for going with the Netflix bid over Paramount’s. (Companies often see these sorts of lawsuits in competitive bidding processes.)
What does this mean for Netflix?
If the Paramount offer is deemed superior to Netflix’s, Netflix will have the opportunity to match or top it. It could also in the interim try to strike a sweetened deal with Warner.
If Warner were to walk away from its deal with Netflix, it would owe the streaming company a $2.8 billion breakup fee. Netflix, on the other hand, would owe Warner $5.8 billion if its deal didn’t go through because of regulatory or other issues. That is one of the biggest breakup fees of all time, suggesting Netflix is confident in its chances.
Netflix has lost around $100 billion in market value since mid-September, when speculation started to swirl that it would be making some sort of play for Warner’s assets and after the Journal reported that Paramount was preparing a bid of its own. That could mean its shareholders might not have a big appetite for a sweetened bid.
How often are large, unfriendly tender offers successful?
Of all hostile tender offers involving multiple bidders since 2000, about 29% have resulted in completed deals, according to an analysis of LSEG data by the Journal. The portion is slightly lower for deals valued at $10 billion or more.
Paramount’s bid for Warner, if completed, would be the biggest hostile tender offer in a competitive process to succeed. The current largest is Royal Bank of Scotland’s deal for National Westminster Bank, completed in 2000 and valued at over $36 billion, according to LSEG data.
Other memorable hostile bids include the attempted buyout of Botox-maker Allergan by Valeant Pharmaceuticals and Pershing Square Capital Management in 2015. The offer was dropped after Allergan accepted a higher-valued friendly deal.
How could Trump influence the process?
Paramount has been arguing that its deal is more likely to pass regulatory muster than Netflix’s, given that Netflix is already a major player in the streaming industry. While Netflix’s deal is expected to be investigated by the Justice Department, more so than in previous administrations the White House is likely to influence where regulators land on any deal.
Paramount’s bid is backed by the Ellison family, President Trump allies, and its equity backers include the private-equity firm of Trump’s son-in-law, Jared Kushner.
But asked about the competing proposals Monday, Trump said he wasn’t close to either company.
“I have to see what percentage of market they have. None of them are particularly great friends of mine,” Trump said at a White House roundtable.
Trump had suggested over the weekend that Netflix’s deal “could be a problem” and said he would be involved in deciding whether to bless it. Then he separately criticized Paramount Monday for having Rep. Marjorie Taylor Greene, a Republican critic of his, on CBS’s “60 Minutes” recently.
This explanatory article may be periodically updated.
Write to Lauren Thomas at lauren.thomas@wsj.com and Ben Glickman at ben.glickman@wsj.com