The ongoing saga over whether Netflix (NFLX +0.74%) or Paramount Skydance (PSKY +1.12%) will acquire Warner Bros. Discovery (WBD 0.78%) has as much drama as one of the streaming platform's hit shows. In the latest twist, a well-known activist investor has purchased a significant stake in Warner Bros. Discovery stock and plans to recommend that shareholders reject Netflix's proposal, which Warner Bros. has already agreed to.
This throws another wrench into Netflix's and Warner Bros. Discovery's plans and could really shake things up. Here's what could happen next.
Image source: Netflix.
How Netflix and Warner Bros. got here
In early December, Netflix and Warner Bros. Discovery announced an agreement under which Netflix would acquire the film and television studios of Warner Bros., including HBO Max, for an enterprise value of nearly $83 billion, with the assumption of roughly $10 billion in debt. In this scenario, Warner Bros. would spin off its cable assets, which were not included in the deal, into a separate company called Discovery Global.
Prior to the agreement, Paramount had been in hot pursuit of acquiring Warner Bros. Discovery in its entirety, including the cable assets, and immediately made a competing all-cash offer of $30 per share, equivalent to $108.4 billion, including the company's debt. Oracle CEO Larry Ellison is backing this offer with a personal guarantee of over $40 billion in equity financing.
The situation has gotten pretty controversial. Warner Bros. has regularly elected to stay with Netflix's offer, which led Paramount to sue the company, seeking more details over what led the company's board of directors to choose the Netflix deal. Paramount CEO David Ellison, son of Larry, also plans to wage a proxy battle for seats on Warner Bros.' board.
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A wrinkle in the negotiations
Recently, activist investor Ancora Holdings disclosed that it has now built a $200 million position in Warner Bros. and plans to vote against the proposed sale to Netflix. Ancora would like Warner to resume negotiations with Paramount.
In a press release, Ancora said, "WBD is asking shareholders to vote for an uncertain final cash consideration based on an unknown debt allocation and an unknown equity value of the Discovery Global spinoff." The fund also expressed concern about Netflix receiving regulatory approval.
Meanwhile, Paramount has enhanced its offer. While the value did not change, Paramount said it would pay Warner Bros. $650 million in total "ticking fees" per quarter starting in 2027, until it closes the acquisition. Any deal involving Warner Bros. is likely to face antitrust scrutiny, so this signals confidence in the company's ability to close the deal in a timely manner. Furthermore, Paramount said it would pay the $2.8 billion termination fee that Warner would owe Netflix if it backs out of the deal.
What happens next
An activist investor is a person or institution that purchases a sizable minority position in a company to influence the company to pursue a specific strategy or action. Activists tend to make some noise and state their case to the public about why a company should act in a certain manner. Typically, activists get involved when they believe a company is not acting in its shareholders' best interests.
Ancora's $200 million stake amounts to only about 0.3% of the company, so while it will likely have influence, its vote is not everything. Still, Ancora has experience in activist campaigns, and its decision to get involved could rally other activists or convince investors to vote against the Netflix deal.
Warner Bros. Discovery recently said it plans to review Paramount's updated deal. A shareholder meeting to vote on the Netflix deal, which is likely to be a showdown, does not have an exact date as of this writing but is expected to take place in late March or early April. Netflix had said it wanted to close its acquisition of Warner Bros.' assets in 12 to 18 months, although that also requires regulatory approval, which is a big question mark as well.
