Netflix has shifted to an all-cash bid for Warner Bros. Discovery's studio and streaming businesses, keeping the $82.7 billion price unchanged as it seeks to block Paramount's rival attempts to acquire the Hollywood heavyweight.
The new all-cash bid – at $27.75 a share – has unanimous support from the HBO owner's board, according to a Tuesday regulatory filing.
Both Netflix and Paramount Skydance covet Warner Bros. for its leading film and television studios, extensive content library and major franchises such as "Game of Thrones," "Harry Potter" and DC Comics' superheroes "Batman" and "Superman."
Paramount has altered its terms and engaged in an aggressive media campaign to try to convince shareholders that its bid is superior, but Warner Bros. has spurned the David Ellison-led company.
Warner Bros. will hold a special investor meeting to vote on the Netflix deal, with the streaming pioneer saying that the meeting was expected to be held by April.
"Our revised all-cash agreement will enable an expedited timeline to a stockholder vote and provide greater financial certainty," Netflix co-CEO Ted Sarandos said in a statement.
Shares of Netflix, which is slated to report quarterly earnings after the market close, were up 1.2% before the bell. Paramount shares were down 1%, while Warner Bros. was little changed.
Netflix shares have fallen almost 15% since announcing the merger on Dec. 5, closing at $88 per share on Friday – well below the $97.91 floor price of the original bid. That drop was part of Paramount's argument that its bid was superior.
The new $27.75-per-share offer from Netflix replaces its earlier cash-and-stock bid for $23.25 in cash and $4.50 in Netflix stock.
"The merger consideration is a fixed cash amount to be paid by an investment-grade company, providing (Warner Bros.) stockholders with certainty of value and liquidity immediately upon closing the merger," Warner Bros. said.
The company's board also disclosed its valuation for Discovery Global, a planned spinoff that will contain television assets, including CNN and TNT Sports and the Discovery+ streaming service.
The board has maintained that the Netflix merger deal is superior to Paramount Skydance's $30-per-share cash bid for the company because Warner Bros.' investors would retain a stake in the separately traded Discovery Global.
Warner Bros.' advisers used three separate approaches for valuing Discovery Global. The lowest share price they arrived at was $1.33 per share, by applying a single value across the whole company. The high end of the range they determined was a price of $6.86 a share, if the spinoff became involved in a future deal.
Paramount has said the cable spinoff central to the streaming giant's offer is effectively worthless.
The rival bidder went to court on Jan. 12 to expedite the disclosure of this information, so investors could evaluate the competing offers for Warner Bros. A Delaware court judge rejected the request, finding that Paramount had failed to demonstrate it would suffer irreparable harm from the alleged inadequate disclosures about Warner Bros.' cable TV business.
Paramount Skydance's tender offer expires on Wednesday.
"Paramount will make another appeal to shareholders. Unless Paramount raises its bid, the appeal will be window dressing," Emarketer analyst Ross Benes said.
The race is expected to come to a head at a shareholder vote later this year as Warner investors weigh the value of cable assets.
Warner Bros. reiterated its reasons for rejecting the Paramount bid, saying its all-cash offer of $30 a share was insufficient after factoring in the "price and numerous risks, costs and uncertainties."
A merger with Netflix would leave the combined company with roughly $85 billion in debt, compared with $87 billion for Paramount. But Netflix is worth considerably more, with a market valuation of $402 billion, compared with $12.6 billion for Paramount.
The Netflix tie-up would be less leveraged – carrying a leverage ratio of under four – than a ratio of about seven with Paramount.
Netflix also agreed to allow Warner Bros. to reduce the amount of indebtedness to be borne by Discovery Global by $260 million, according to the regulatory filing.
Netflix also has an investment-grade credit rating, whereas Paramount's bonds are rated at junk levels by S&P and would likely come under further pressure, Warner Bros. said in its filing.
Winning over shareholders' approval, however, may only be the first step in what could be a long process, given that lawmakers across the political spectrum have voiced concerns that further media consolidation could drive up prices and reduce consumer choice.
The Ellisons have argued that their relationship with U.S. President Donald Trump gives them an easier regulatory path to approval.
