It took a price of $111 billion, backed by $46 billion from tech billionaire Larry Ellison, plus the promise to pay $7 billion in compensation if the deal failed.
The final numbers that saw Paramount Skydance Corp. push rival Netflix Inc. out of the battle for Hollywood studio peer Warner Bros Discovery Inc. are epic. But in the final analysis, this auction stopped short of total irrationality.
Paramount arguably needed Warner most and faced fewer political and regulatory hurdles. The media empire backed by Oracle Corp. co-founder Ellison and led by his movie producer son David also had more cost-cutting options thanks to the chance to combine two large cable-TV platforms.
You never get a trophy asset on the cheap. Netflix’s competing interest, culminating in a deal to buy most of Warner in December for $83 billion, ensured Paramount paid up. The final $31-a-share offer for 100% of Warner equates to 13 times this year’s forecast profit (as measured by earnings before interest, tax, depreciation and amortization.) But factor in the future boost from cost savings, and that falls to a less painful eight times, in line with where Fox Corp. trades and a discount to Walt Disney Co.’s valuation.
The market was hoping the final price would be higher and both sides could have afforded another round of bidding. Bloomberg Intelligence reckoned Paramount could have justified paying $35 a share.
So Paramount has gotten as good a deal as was possible in the circumstances. Having said from the get-go that its previously spurned $30-a-share rival bid wasn’t “best and final,” it was always going to have to sweeten. Anything less than the $1 top-up proffered would have damaged credibility. As for the 25c a share “ticking fee” due every calendar quarter if the transaction doesn’t close in 2026, well, that may never have to be paid.
Other concessions mostly matched the terms and conditions of Netflix’s deal from a starting point well behind. The final big giveaway was a break-fee to recompense Warner if the deal falls apart that’s $1.2 billion bigger than Netflix’s $5.8 billion. That was less expensive than upping the price further. It would have been harder for Netflix to match given the Bridgerton and House of Dynamite maker faced a higher probability of a deal block due to its expanded position in subscription streaming.
Netflix was, of course, right to pull out, as so many of its investors hoped it would after the saga wiped $200 billion from its market value. It can now invest in building its library organically. There are, however, strategic costs: Paramount-Warner will be a stronger competitor to Netflix in streaming. The “streaming wars” could now intensify instead of easing. That has implications for Amazon.com Inc. and Disney too. Repairing the full damage to Netflix’s market capitalization may take time.
From here, Paramount has the easier path to completion but it’s not a straight line. Its deal has made rapid progress in the US. Concessions may nevertheless be necessary to secure clearance in the UK and Europe, says Bloomberg Intelligence analyst Jennifer Rie.
Meanwhile, the younger Ellison has a huge job on his hands extracting the $6 billion of touted annual cost-savings while maintaining morale across all the constituent businesses. In creating a massive television platform with both CNN and CBS News, the Ellisons have bought vast influence that will attract controversy. Commercially, they’re stuck with the business challenge of managing the melting ice cube that is cable.
The risks to Paramount may not be in closing the deal and dodging paying that blockbuster break fee, but in delivering the integration and preserving the value of their prize.
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