Shares of Netflix jumped nearly 12% to $94.62 on Friday, at around 12:47 pm (GMT-5), after the company dropped out of the race to acquire Warner Bros Discovery (WBD), with investors cheering its decision to walk away from the high-stakes deal.
At the same time, Paramount’s shares rallied as much as 23% to $13.76 during the same time as the company emerged as the frontrunner to gain control of the multinational media entertainment conglomerate and its prized TV and film assets.
Meanwhile, WBD’s stock was marginally lower, slipping more than 2% to $28.18 in Friday’s trading session on Nasdaq.
Netflix’s exit effectively clears the path for David Ellison-run Paramount Skydance to move ahead with a takeover of WBD, a battle that has been going on for months. It also sets the stage for one of the industry’s biggest consolidation moves.
In December last year, streaming giant Netflix inked a deal worth $82.7 billion, including assumed debt, to acquire Warner Bros. Discovery. However, Paramount Skydance kept offering repeated bids.
Why did Netflix pull out of the deal?
Netflix announced its exit from the race on Thursday after concluding that Paramount Skydance had submitted a superior offer for WBD.
The decision followed a seven-day window granted by Netflix last year, allowing WBD to engage in talks with Paramount Skydance, a move that ultimately resulted in a higher revised bid.
As per Reuters, Paramount Skydance tabled a bid of $31 per share that topped Netflix’s $27.75 offer for the studio and streaming assets, valuing Warner Bros. Discovery at approximately $111 billion.
The streaming giant subsequently confirmed that it would not match Paramount Skydance’s latest offer, formally stepping aside from the takeover battle.
“The transaction we negotiated would have created shareholder value with a clear path to regulatory approval,” Netflix said in a statement on Thursday,
Commenting on the rationale behind the decision, Netflix said that with the price required to “match Paramount Skydance’s latest offer, the deal is no longer financially attractive, so we are declining to match the Paramount Skydance bid”.
What happens next?
Now that the prolonged bidding war is resolved, the attention has shifted back to the regulatory hurdles that a merger between Paramount and Warner Bros. Discovery is likely to face, Reuters said in a news report.
Even though the Ellisons have connections to US President Donald Trump, the bid is still likely to face antitrust scrutiny in Washington, in foreign countries and US states, including California.
In its revised bid, Paramount raised the termination fee it would pay to WBD should the deal fail to gain regulatory approval to $7 billion from $5.8 billion.
Paramount also promised to give Warner Bros. $2.8 billion to pay Netflix for terminating their agreement.
