Netflix drops out of Warner Bros race

Paramount Skydance is poised to win the battle to acquire Warner Bros. Discovery (WBD) after rival Netflix backed out.

The world’s biggest streaming service was in top position to strike a deal by which it would pay $27.75 a share for Warner’s studios and HBO Max streaming businesses, valuing the divisions at about $83 billion (£61.6 billion), including debt.

Netflix was invited to raise its bid after Paramount submitted its final offer for the entire WBD business at $31 per share earlier this week, which ultimately concluded a ping-pong process of sweet bids.

That final offer valued WBD at $111 billion (£82.4 billion), including debt.

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Warner’s board announced Thursday night that although it continued to recommend Netflix’s offer, it now deemed Paramount’s offer “”superior”—the first sign of support for a bidder declared hostile when the saga began in December.

Netflix responded just hours later by pulling out of the process and announcing that the deal was “no longer financially attractive”.

Co-CEOs Ted Sarandos and Greg Peters said, “We believe we would have been stronger stewards of Warner Bros.’s iconic brands. But this transaction was always a ‘good one’ at the right price, not a ‘must have’ at any price.”

The decision to withdraw does not mean that Paramount still owns WBD.

The board has not yet given its blessing to the deal, although the WBD has changed its tone and expressed support for the bid for the first time.

CEO David Zaslav used a statement to announce that Paramount’s offer would “create tremendous value”, adding that WBD is “excited about the potential of a combined Paramount Skydance and Warner Bros. Discovery”.

Warner’s shareholders and regulators would also have to agree to the acquisition, facing questions over political influence as well as competition concerns in the process.

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If Paramount Skydance is successful in its takeover bid, it would own news channel CNN as well as CBS News, raising concerns about the concentration of news services within a few companies linked to Donald Trump’s associates.

Paramount Chairman and Chief Executive David Ellison is the son of billionaire Larry Ellison, an ally of the US President, who has put up tens of billions of dollars to meet funding guarantees for the WBD bid.

The Paramount-Warner combination would involve two of Hollywood’s five legacy studios.

Beyond Harry Potter, Warner films like Superman and Barbie – as well as hit TV series like Succession – will join Paramount’s content library.

Paramount’s lineup of titles includes Top Gun and The Godfather and also includes the Paramount+ streaming service.

As the developments unfolded, there were large fluctuations in share prices in after-hours trading.

Netflix saw its stock rise 8.5% in a relief rally, while Paramount’s shares also rose sharply – 6.2%.

WBD shares were trading down about 2% at $28.80 – well below the Paramount offer price of $31.

Matt Britzman, senior equity analyst at Hargreaves Lansdown, said of the move: “Although there was clear room for Netflix to grow further, management chose discipline over empire building, thereby avoiding the risk of a major acquisition weighing on shares.

“The bid always looked like a mix of offence and defence – shoring up content and scale while preventing the competition from gaining any edge, but at a very high price – and with that risk now off the table, investors are free to refocus on Netflix’s core strengths: pricing power, margins and execution.

He concluded, “For now, at least, the market is pricing this as a win for everyone.”