David Ellison's Paramount Skydance has until Monday to submit its final and best offer for Warner Bros. Discovery. It is expected that Paramount will increase its previous $30 per share offer for WBD, aiming to outbid Netflix and win the deal.
With Netflix's approval, the WBD board has started a seven-day conversation period to talk about better offers.
This talk period ends at 11:59 PM ET on February 23, following efforts from both companies over the weekend.
Paramount has not commented on its next move.
Sources say it is likely to offer around $32 per share for WBD.
What will Netflix do?
After Paramount submits its new proposal, Netflix has four days to either match the offer or leave the deal.
Netflix co-CEO Ted Sarandos, in an interview with Variety's Cynthia Littleton on Friday, did not say how Netflix would respond to a better offer from Paramount.
He mentioned that Netflix has a history of walking away if someone else pays more.
"In the next step, it's up to someone else.
We have a signed deal with Warner Bros. Discovery," Sarandos said in the February 20 interview. "If someone wants to make a better deal, which the WBD board says hasn't happened yet, then we will see what happens later. But let's not get ahead of the process. I wouldn't comment on the bidding strategy anyway. But the core of it is, we are super disciplined buyers, as you probably know we have a reputation for that, so I'm willing to walk away and let someone else overpay for things. We have a rich history of that."
If WBD accepts Paramount Skydance's higher offer, WBD will have to pay a $2.8 billion fee to Netflix.
In its latest offer, Paramount has said it will cover that fee.
On February 17, WBD said it was having discussions with Paramount to get clarity on its "best and final offer."
WBD wanted Paramount Skydance to explain its proposal, which they believe will have a per share price higher than $31.
In a letter sent to Paramount's board, WBD's CEO David Zaslav and board chairman Samuel Di Piazza Jr. wrote that they wanted clarification on the offer.
They mentioned communication from a "senior representative for PSKY" to a WBD board member, who said that if the WBD board approved M&A talks, Paramount would agree to pay $31 per share and that this was not their final offer. WBD also set March 20 for a shareholder meeting to vote on the Netflix deal, which the board recommended at the time.
"The question now is how high PSKY is willing to go—and whether Netflix will use its matching rights and raise its own offer," wrote MoffettNathanson analyst Robert Fishman in a February 20 research note.
"In short, we expect PSKY to go to at least $32 per share to pressure Netflix to increase its bid likely to the $30 per share range. If PSKY truly wants to win the bidding war with Netflix, we think it will take a bid in the range of $34 per share to avoid ongoing debate over the value of Discovery's Global Networks."
Under Netflix's current agreement with WBD, Netflix would buy Warner Bros.' studios and streaming businesses for $27.75 per share.
WBD shareholders would keep equity in Discovery Global, the proposed spin-off that includes CNN, TBS, and other linear networks.
If Netflix raises its offer above $30 per share, "we have difficulty making the accretion math work," Fishman wrote.
This factors in added debt, "likely revenue cannibalization and necessary programming spend cuts."
"While we see the long-term benefits of owning Warner Bros., HBO, and HBO Max, we expect Netflix to walk away from the deal following a disciplined approach if PSKY pushes its bid well beyond $32 per share," the MoffettNathanson analyst continued.
"We think it will be difficult for PSKY to win the bidding war for WBD if it decides to take a less aggressive approach during this waiver period, giving Netflix the opportunity to match at a more modest increase from its current bid."
Meanwhile, Donald Trump, who earlier this month said he wouldn't be involved in reviewing the Netflix-WB deal, demanded on social media that Netflix "immediately fire" board member Susan Rice or else "pay the consequences."
Trump cited a tweet by far-right commentator Laura Loomer, who claimed Rice, who served as U.N. ambassador under Obama, was "threatening half of the country with weaponized government political retribution." Loomer also weirdly claimed that if Netflix acquired Warner Bros., "positive messaging of the Democrats' upcoming witch hunts against Trump from Barack Hussein Obama and his anti-White racist wife Michelle would likely be blasted across all streaming services."
On Monday, Sarandos talked about Trump's comments. He said, "He likes to do a lot of things on social media," during a BBC Radio 4 interview. "This is a business deal. It's not a political deal. This deal is handled by the Department of Justice in the U.S. and regulators in Europe and around the world," he explained.
In recent weeks, the Justice Department has broadened its look into the proposed Netflix-WB deal to check if the combined company would break antitrust rules in the entertainment programming market.
The DOJ's Antitrust Division has sent questions to independent studios, asking if the Netflix buy of Warner Bros. "may substantially lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton Act or Section 2 of the Sherman Act," according to a copy of one of the letters reviewed by Variety.
Netflix claims it doesn't have near-monopoly power in any market.
In a statement to Bloomberg about the expanded DOJ investigation, chief legal counsel David Hyman said, "Netflix operates in an extremely competitive market. Any claim that it is a monopolist, or trying to monopolize, is not true. We don't have monopoly power or engage in exclusionary behavior, and we'll happily work with regulators on any concerns they may have."
On Friday, Paramount announced that its proposed WBD takeover had passed a key step at the DOJ, after the end of the statutory waiting period following Paramount Skydance's "certification of compliance" with the Justice Department's second request for information under the Hart-Scott-Rodino antitrust act.
Netflix's Hyman criticized Paramount for continuing to "mislead stockholders and distract from the facts," saying that "routine HSR milestones do not mean DOJ approval or that any decision has been made."
