Paramount’s ‘Sweeter’ Bid Isn’t What Warner Bros. Investors Are Looking For | Analysis

Paramount will have to try harder if it wants the attention of Warner Bros. Discovery shareholders.

Headlines flashed this morning that the media company had sweetened its bid, funding the $2.8 billion breakup fee Warner would have to pay Netflix to walk away, covering up to $1.5 billion in refinancing costs and adding a “ticking” fee that offers additional money if the deal drags on beyond the end of the year.

“We are making meaningful enhancements – backing this offer with billions of dollars, providing shareholders with certainty in value, a clear regulatory path and protection against market volatility,” Paramount CEO David Ellison said in a statement.

But the “enhanced” bid, as Paramount put it, is sweeter on a technicality, and doesn’t change the core offer of $30 a share in cash for the entire company. Adding extra elements won’t be enough to change the opinion of shareholders who overwhelmingly view the Paramount bid unfavorably and need a big gesture to change their minds.

“I don’t think this amendment meaningfully moves the needle on Paramount’s likelihood of success with a $30 offer,” Matt Dolgin, an analyst at Morningstar, told TheWrap.

Both Warner Bros. Discovery shareholders and the company itself have made clear they’re expecting a higher bid from Paramount. These revisions raise questions about whether Ellison is willing to budge on his core offer. The clock is ticking as its latest tender offer expires in 10 days, and a shareholder vote on Netflix’s $83 billion deal is expected to happen by April, if not sooner.

Paramount’s latest filing also illustrates just how little WBD shareholders think of its original offer. As of Monday, 42.3 million shares have been tendered to Paramount, a 75% decline from its prior disclosure of 168.5 million shares tendered on Jan. 21, a sign that investors are losing hope on its hostile bid effort. Both figures represent an insignificant percentage of the 2.48 billion total outstanding shares.

Warner’s board said it will “carefully review and consider” the amended offer but, of course, it needs to say that. Given the lack of a tangible increase and the prior hostile interactions with Paramount, there’s no way the board changes its mind.

Dolgin said that he believed the Paramount offer was superior from the beginning, but acknowledged he’s in the minority in that opinion. There’s nothing in the new offer that will change the prevailing opinion that this deal is Netflix’s to lose, and that Paramount’s only option is to materially raise its offer.

A spokeswoman for Paramount wasn’t available to comment on its options if shareholders reject the amended tender offer.

Breaking down the changes

The new wrinkle to Paramount’s offer is the addition of a “ticking fee” element, something rarely seen in M&A deals. It pays out $650 million in cash value for every quarter the transaction isn’t closed beyond Dec. 31, 2026, and reinforces the company’s argument that it can get its deal done faster than Netflix.

But shareholders likely aren’t putting too much stock in this aspect as they weigh their options.

“The ticking fee is something that is unlikely to add materially if at all to what shareholders will receive, because they were probably already figuring that Paramount was likely to get this deal closed by around the end of 2026,” Dolgin said.

The irony is that the changing of the offer to cover the costs associated with the breakup fee and refinancing expenses improves Paramount’s case that its offer is superior to the Netflix bid, according to Paul Nary, M&A and strategy professor at the Wharton School of the University of Pennsylvania.

Nary calculated the $2.5 billion break-up fee and $1.5 billion of covered refinancing cost to equate to $1.75 a share in indirect improvement. He also lauded Paramount’s willingness to work together on improving the final terms.

“Some WBD investors may be disappointed that Paramount’s updated offer for WBD retains the old $30 headline price, with a small addition of a ticking fee if the deal doesn’t close in 2026,” he told TheWrap. “Yet this updated offer goes a long way towards addressing many of the key concerns of WBD’s board and may be the right strategic step for Paramount on the way to a potentially winning bid.

Nary believes Paramount needs to “pause the hostilities and launch a charm offensive.”

The problem is Paramount has already poisoned the well by going hostile, meaning it would need to come back with an offer that blows WBD’s board and shareholders away. Nary, for instance, suggested WBD CEO David Zaslav would be more responsive to a higher bid in the $32+ range, and said Paramount may still be holding off on a final sweeter off.

Time is running out, and it’s clear that what was good enough a month or two ago is no longer good enough now.

Lucas Manfredi contributed to this story.

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