Netflix strengthens its Warner Bros. bid as Paramount's David Ellison tries to wreck its deal

• Netflix is revising its offer to buy Warner Bros. and offering all cash, similar to Paramount's bid.
• Paramount has argued that its offer is financially superior and has sued WBD.
• Unless WBD shareholders move against the board, Paramount may have to offer more money.

Netflix is breaking open its piggy bank to keep Paramount Skydance CEO David Ellison from crashing its Warner Bros. deal.

The streaming giant just sweetened its offer for the Warner Bros. studio and HBO by offering all-cash, matching a key feature of Paramount's hostile bid. Warner Bros.' board of directors has approved the all-cash bid, and the companies said they expect Warner shareholders to vote on the transaction 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 announcing the news.

"Today's revised merger agreement brings us even closer to combining two of the greatest storytelling companies in the world," David Zaslav, president and CEO of Warner Bros. Discovery, said in a statement on Tuesday.

While Netflix isn't raising its bid from $27.75 per share, converting $4.50 per share in stock to cash takes away a variable for Warner Bros. Discovery shareholders. Netflix shares are down 13% since the Warner Bros. deal was made public and have fallen 28% since late October.

Paramount believes its all-cash offer of $30 per share for all of WBD is superior to Netflix's winning bid for WBD's key assets, which include its studio, HBO, and HBO Max, but not its TV networks. Ellison has made eight bids for WBD, all of which have been rejected. Paramount is now suing WBD while fighting for spots on its board.

A key remaining point of difference between the two bids hinges on the perceived value of WBD's networks. Paramount is looking to buy them, while Netflix is not.

If WBD's cable channels, such as CNN, TNT, and HGTV, are valued at less than $2.25 per share, or $5.9 billion, then Paramount's proposal appears, at first glance, to be more appealing than Netflix's. However, WBD has said that it must knock off $1.79 per share from Paramount's bid to account for costs it would incur by changing course, like a $2.8 billion breakup fee to Netflix. That would mean WBD's cable networks only need to be worth $0.46 per share for Netflix's bid to be financially superior in the board's eyes.

Paramount has argued that the WBD cable networks it wants to buy are worth $0 per share, or only as much as the debt they're expected to carry. Ellison and company acknowledged "the theoretical possibility" that those TV assets could be worth $0.50 per share.

Most media analysts have a rosier view of WBD's cable business, valuing its channels anywhere from the low single digits to $3.51 per share. Even a glass-half-empty view based on the valuation of new cable company Versant would put WBD's networks at $1.20 per share as of last week, a Business Insider analysis found.

Netflix's updated all-cash offer helps solidify WBD's decision to choose it, after accounting for the added costs from Paramount's bid.

Unless WBD shareholders band against its board of directors, Paramount may face pressure to sweeten its offer by raising its bid.