Paramount Beats Netflix in Months-Long Fight for Warner Bros.

Paramount Skydance Corp.finally clinched its deal for Warner Bros. Discovery Inc., outmaneuvering its rival Netflix Inc. after a months-long battle by agreeing to pay $111 billion for the legendary Hollywood studio.

The victory for Paramount Chief Executive Officer David Ellison was hard won, requiring multiple bids over more than five months, visits to Washington, meetings with shareholders and President Donald Trump and the personal backing of his billionaire father Larry Ellison.

Netflix bowed out of its $82.7 billion offer for Warner Bros.’ studio and streaming business on Thursday after the board declared a recent Hail Mary bid from Paramount for the whole company was superior.

The dramatic eleventh-hour turnaround would give the Ellison family control of one of the most powerful media empires in the world, uniting two Hollywood studios behind legendary films from Casablanca and Harry Potter to Mission: Impossible; two major news networks in CNN and CBS; the streaming powerhouse HBO and dozens of cable networks.

Read More: Netflix Investors Cheer Decision to Drop Warner Bros. Fight

“Once our board votes to adopt the Paramount merger agreement, it will create tremendous value for our shareholders,” Warner Bros. CEO David Zaslav said in a statement. “We are excited about the potential of a combined Paramount Skydance and Warner Bros. Discovery and can’t wait to get started working together telling the stories that move the world.”

Just months ago, it seemed as if the increasingly hostile relations between Warner Bros. and Paramount had reached an irreparable low. After apparently losing the fight to Netflix in December, Paramount launched a multipronged campaign to get back in the game.

Paramount threatened Warner Bros. with legal action for failing to carry out a fair sale process. The company began a tender offer for Warner Bros. shares and was poised for a proxy fight at the next annual meeting. Zaslav, meanwhile, stopped responding to Ellison’s messages. Warner Bros. announced Netflix’s bid as clearly superior and repeatedly rebuffed Paramount’s attempts at reviving talks.

But last week Paramount slipped in one more offer and suggested it would be open to raising its price by $1 a share and agreed to pay the $2.8 billion termination fee Warner Bros. would be required to pay Netflix for bowing out, as well as other sweeteners.

Netflix, which had clinched a deal with Warner Bros. in December for $27.75 a share for most of the company except the cable business, granted a waiver for Warner Bros.’ board to open talks with Paramount for seven days. Negotiating down to the wire, Warner Bros. in the end determined that Paramount’s offer was indeed superior.

“We’ve always been disciplined, and at the price required to match Paramount Skydance’s latest offer, the deal is no longer financially attractive,” Netflix said Thursday in a statement. Instead, it will keep investing in its business, including about $20 billion this year on films, TV shows and other entertainment offerings.

Netflix shares were up 8.8% in premarket trading in New York on Friday, indicating that investors were happy to see the company walk away from the deal. Warner Bros. shares, which have gained 130% since Paramount’s interest became known last September, fell, with investors no longer anticipating a bidding war. Paramount shares were up 4.1% early Friday.

The streaming industry leader said that while it believed its offer would have passed muster with regulators and created shareholder value, it didn’t want to pay more.

Read More: Warner Bros. Says Paramount’s $111 Billion Deal Tops Netflix

Netflix’s decision not to raise its offer “has paved the way for shareholders to receive meaningfully more cash and a truly viable path to government approvals,” Ancora Holdings Group, an activist investor in Warner Bros., said in a statement. “This is a win-win for shareholders and the industry.”

The takeover fight has been contentious, in Hollywood and in Washington. Both Netflix co-CEO Ted Sarandos and Ellison made pilgrimages to the US capital this week to meet with lawmakers.

Sarandos spent about an hour on Thursday with officials in the Trump administration.

“I’m not doing press today,” he said upon leaving the White House.

Ellison attended Trump’s State of the Union address on Tuesday as a guest of Lindsey Graham, a Republican Senator from South Carolina. Graham was also seen at the White House on Thursday.

Paramount will face ongoing scrutiny for its deal. It has agreed to pay a $7 billion termination fee if it doesn’t win regulatory approval and a “ticking fee” of 25 cents a share per quarter beginning after Sept. 30 in the event the transaction does not close.

The US Senate Judiciary Committee had scheduled a hearing for March 4 to once again examine the Warner Bros. sale, following a hearing earlier this month. New Jersey Senator Cory Booker, a Democrat, once again extended an invitation for Ellison to attend.

Elizabeth Warren, a Massachusetts Democrat, also weighed in on the Paramount deal. “A Paramount Skydance-Warner Bros. merger is an antitrust disaster threatening higher prices and fewer choices for American families,” she said in a statement. “A handful of Trump-aligned billionaires are trying to seize control of what you watch and charge you whatever price they want.”

Netflix, an early mover in online TV, has built up a profitable business with more than 325 million consumers around the globe paying a monthly subscription for its TV shows and movies.

Legacy film and TV producers like Paramount and Warner Bros. have launched their own streaming businesses, but lack the subscriber base of rivals as their traditional networks lose viewers and advertisers.

Paramount’s offer includes Warner Bros. cable-TV networks like CNN and TNT. The company kicked off the bidding with a private offer in September. That was just one month after Ellison closed on the merger of his Skydance Media with Paramount, giving him control of the Paramount film studio, streaming service and TV networks like CBS and MTV.

Warner Bros. began soliciting offers for the business in October before finalizing a deal with Netflix in December.

Ellison made adjustments to the terms of its offer after repeated rejections by Warner Bros. Those included personal guarantees on $45.7 billion in equity from a trust created by Ellison’s father, the Oracle Corp. chairman who is one of the world’s richest men and a Trump ally.

Paramount said Thursday it has $57.5 billion of debt financing committed for the deal, provided by Bank of America Corp., Citigroup Inc. and Apollo Global Management Inc. The three firms had previously committed $54 billion.

--With assistance from Josh Sisco, Liana Baker, Jennifer A. Dlouhy, Dan Wilchins and Diasia Robinson.

To contact the reporter on this story:
Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net

To contact the editors responsible for this story:
Lucas Shaw at lshaw31@bloomberg.net

Christopher Palmeri, Molly Schuetz

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