In order to get rid of Paramount's relentless pressureCompetitive biddingNetflix decided to remove the stock swap option and instead amend its proposal to use a "All cashThe company acquired a stake in Warner Bros. Discovery (WBD) in an all-cash transaction.
However, despite the change in the form of the acquisition, Netflix's offer for Warner Bros.' film studios and streaming assets remains at $27.75 per share, with the total value still at the previously proposed $827 billion.
Switching to cash for "certainty" and speed
According to a statement released by both companies on Tuesday, Netflix's main purpose in revising its offer was to "simplify the transaction structure" and provide shareholders with "greater certainty of value," hoping to expedite the shareholder vote. Netflix stated that it will complete this massive transaction through cash, debt, and "committed financing."
This move is clearly a response to the recent aggressive offensive by rival Paramount.
Paramount offered a higher price: $30 per share to buy the entire company.
To win the support of Warner Bros. Discovery shareholders, Paramount made an all-cash offer of $30 per share, aiming to acquire Warner Bros. Discovery's entirety. To demonstrate its financial strength, Paramount CEO David Ellison even invoked his wealthy father—Oracle co-founder Larry Ellison—and secured a $400 billion guarantee.
In addition to its financial offensive, Paramount filed a lawsuit against Warner Bros. Discovery last week, demanding more information about Netflix's offer and threatening to push through the acquisition deal by nominating new board members after the offer was rejected by Warner Bros. Discovery's board.
Why does Warner Bros.' board of directors favor Netflix?
Despite Paramount's higher offer per share, Warner Bros.' board of directors remains firmly in support of Netflix's proposal and has decisively rejected Paramount's acquisition offer.
Warner Bros. Exploration's board of directors cited "risk management" as the reason, believing that selling to Netflix would be a better option because the streaming giant has sufficient capital to pay for the acquisition. In contrast, Warner Bros. Exploration criticized the Paramount deal for "significant risks," stating that the merged company would be burdened with a massive $870 billion in debt.
Warner Bros. further questioned whether this high-leverage operation would cause Paramount's already "junk" credit rating to deteriorate further. In addition, given that Paramount's current free cash flow is negative, the financial health of the merged entity is clearly worrying.
Analysis of viewpoints
This acquisition battle has evolved into a showdown between cash and leverage.
Netflix's sudden switch to an all-cash deal indicates it felt pressure from Paramount's higher acquisition offer. While Netflix's $27.75 per share was lower than the competitor's offer of $30, the all-cash deal meant Warner Bros.' prospective shareholders could immediately cash in without worrying about the risk of Netflix's stock price fluctuations after the share swap, which is extremely attractive in an uncertain economic environment.
More importantly, this reflects Warner Bros. Exploration's management's view on "survival." Paramount's asking price was high, but it was based on extremely high financial leverage, and the merged company might be crushed by accumulated debt; while Netflix, on the other hand, is a buyer with deep pockets, ensuring that Warner Bros. Exploration's assets (such as HBO and the DC Universe) will have stable development resources after the acquisition.
For Warner Bros.' prospective shareholders, the current situation presents a crucial choice: whether to opt for the immediate windfall of an extra $2.25 per share (but with the risk of high leverage), or to choose a stable exit mechanism that allows for immediate cash in.
