The battle between Paramount Skydance (PSKY 1.41%) and Netflix (NFLX 0.73%) continued recently, with Warner Bros. (WBD 1.33%) saying Paramount has raised its all-cash bid to buy the company by $1 to $31 per share.
Furthermore, Paramount included a $7 billion termination fee if the acquisition is not approved by regulators. Paramount had already made its offer more attractive by agreeing to pay the $2.8 billion termination fee that Warner Bros. would owe Netflix if it walked away from the agreement it already has in place. Netflix is already planning to buy Warner Bros.' television and film studios, including HBO Max.
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Paramount also offered Warner Bros. a "ticking fee" of $0.25 per share starting on Sept. 30. This means that for every quarter the deal does not close after this date, Paramount has to pay Warner Bros. $650 million per quarter, which suggests Paramount has high confidence in its ability to overcome antitrust concerns and get the deal approved.
NASDAQ: WBD
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Warner Bros. said it is reviewing the offer, but made it clear that the Netflix agreement, valued at nearly $83 billion in enterprise value, including the assumption of about $11 billion of debt, remains in effect and that Warner Bros.' board of directors continues to recommend the Netflix deal.
Still, it's clear that Paramount really wants to acquire Warner Bros. and is making progress toward that goal. Is the Netflix deal dead?
Looking at the actual value of each offer
Paramount has made it clear that it believes it is the only company that can obtain regulatory approval for an acquisition involving Warner Bros. While I personally believe Netflix has a good chance of doing so as well, nobody knows for sure. However, we can assess the actual values of each offer.
The equity value of the Netflix deal, which is now an all-cash offer, is $27.75 per Warner Bros. share, or $72 billion. The company is also assuming nearly $11 billion in debt, and remember, Netflix would not be buying the cable assets.
NASDAQ: NFLX
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Paramount would purchase the entire company for $31 per share in cash, including the cable assets, which include top networks like CNN, TBS, and other sports and news channels. The question is how much these cable assets, which face secular headwinds, are worth.
According to a Fortune article from back in December, Paramount had initially believed the cable assets were worth $1 per share, while Wall Street analysts believed they could be worth as much as $4 per share.
So Paramount's revised offer gets closer to valuing the cable assets at $4 per share, although remember, Netflix's assumption of debt probably adds some value as well.
NASDAQ: PSKY
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Ultimately, Paramount has made its offer much more competitive, and there could be an underlying premium if investors believe it is the most likely to obtain regulatory approval. The large breakup fee and the ticking fees certainly signal confidence in obtaining regulatory approval.
I still believe Netflix's deal is competitive, but the stakes have been raised. It's not unreasonable to believe the streaming giant may eventually have to make a better offer to stay in the game.
