The high-profile Hollywood merger battle that captured global attention has concluded, with Paramount Skydance emerging as the victor after tabling a total acquisition offer of $111 billion. However, the outcome represents a scenario where no party truly wins. Streaming giant Netflix declined to increase its bid for the majority of Warner Bros. Discovery's business on Thursday, conceding the Hollywood conglomerate to rival bidder Paramount Skydance. Despite the transaction including rigorous protective measures, the $111 billion price tag risks perpetuating an existing loss-making trajectory.
Warner Bros. announced that Paramount's all-cash offer of $31 per share surpassed its previous agreement with Netflix, valued at $27.75 per share. The earlier deal would have left behind declining broadcast networks, slated for a spin-off with questionable value, alongside a significant debt burden. The conflict evolved largely into a matter of establishing a clear path to completion, equally as much as it was about financial terms.
Paramount's capacity to integrate a substantially larger studio, its extensive film library, intellectual property, and accompanying television assets has raised serious doubts, including concerns voiced within the boards of both Netflix and Warner Bros. Paramount's principal, David Ellison, ultimately leveraged the support of his billionaire father, Larry Ellison, to alleviate these concerns—a move Netflix did not replicate. The responsibility now falls upon the elder Ellison, the Oracle founder whose stake in the cloud computing giant effectively guarantees the bid.
Even if Paramount realizes its promised $6 billion in substantial synergies, combining this with Warner's projected operating income and accounting for taxes implies a return rate of less than 6%. Cost-cutting initiatives will likely face political opposition, and the merger will attract antitrust scrutiny, regardless of the Ellison family's connections to former President Trump. Meanwhile, interest costs present a lingering uncertainty. These expenses appear particularly precarious given that Warner Bros. Discovery itself has struggled under heavy borrowing since its merger with Discovery nearly four years ago; its stock had fallen by approximately half in the five years leading up to the recent deal talks.
A minor consolation is that Warner Bros. Discovery is finally showing signs of a turnaround. Last year, profits from its flagship HBO streaming service doubled. Nevertheless, Netflix may have dodged a costly acquisition misstep; its stock jumped 10% following its withdrawal from the bidding. The Warner Bros. transaction can only recoup a portion of the losses, with some scars destined to remain.
The $360 billion company, co-led by Ted Sarandos and Greg Peters, has already drawn regulatory attention. A coalition of state attorneys general has expressed concerns about the merger plans, and the Department of Justice has initiated an investigation focusing on Netflix's potential market power. Warner's chief, David Zaslav, secured a striking premium of nearly 150%, coupled with unusually stringent terms to compensate any investors who held on. This, of course, generously overlooks the substantial opportunity cost incurred, as the S&P 500 index has gained 80% over the past five years. The casualties from this corporate conflict will linger for the foreseeable future.
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