Netflix gets outbid by Paramount as the battle for Warner Bros. Discovery goes hostile

Paramount Skydance has launched a hostile bid for Warner Bros. Discovery following the media giant's decision to accept Netflix's acquisition offer.

Paramount on Monday appealed directly to Warner Bros. Discovery shareholders, making a $30 all-cash per share offer. That's higher than the $27.75 Netflix has agreed to pay, but the same price Paramount offered Warner in its formal bid. Paramount Skydance is hoping to acquire the totality of Warner Bros. Discovery, while the Netflix bid was only for the film studio and streaming business.

This is the sixth bid Paramount Skydance has made for Warner Bros. Discovery. It totals out to $17.6 billion more than the Netflix offer.

"WBD shareholders deserve an opportunity to consider our superior all-cash offer for their shares in the entire company," David Ellison, chairman and CEO of Paramount Skydance, said in a statement. "Our public offer, which is on the same terms we provided to the Warner Bros. Discovery Board of Directors in private, provides superior value, and a more certain and quicker path to completion. We believe the WBD Board of Directors is pursuing an inferior proposal which exposes shareholders to a mix of cash and stock, an uncertain future trading value of the Global Networks linear cable business and a challenging regulatory approval process."

Paramount said Warner Bros. Discovery "never engaged meaningfully" with its proposals before. With the tender offer, Warner Bros. Discovery will be required to make a filing with the Securities and Exchange Commission, explaining why it chose Netflix and rejected Paramount.

Paramount quickly garnered additional scrutiny for how it planned to finance the possible takeover. In an SEC filing, Paramount said it was relying on debt financing from a trio of sovereign wealth funds based in Saudi Arabia, Qatar, and Abu Dhabi. Jared Kushner's Affinity Partners would also be involved in the deal.

The filing said that the funding partners had agreed to give up "governance rights" — including seats on the company board — as part of a future agreement to avoid triggering a national security review from the U.S. government.

Lawmakers have already warned that they have concerns that by combining Netflix and HBO Max, the new streaming service could have a lopsided amount of power in the streaming space. On Sunday, the White House weighed in, with President Donald Trump saying "I’ll be involved in that decision" and that Netflix also owning HBO Max "could be a problem."

"I'm incredibly grateful for the relations I have with the president," Ellison said on CNBC. "and I also believe he believes in competition. … And allowing the number one streaming service to combine with the number three streaming service is anti-competitive."

"Our deal is more value, more certainty, and more speed to close," Ellison said.

A Netflix-WBD deal could also impact the theatrical film market, as it's unclear if Netflix would continue to release films to theaters after commitments previously made by Warner Bros. Discovery are met.

"Netflix has stated that it would honor those theatrical obligations. However, significant concerns remain within the industry and among government officials," Wedbush analyst Alicia Reese wrote in a note to investors. "Shares of theater exhibitors, including Cinemark, AMC, and Marcus, have declined recently on concerns about a Netflix win, given the possibility that Netflix would attempt to significantly shorten the theatrical window or bypass it altogether for most titles."

Ellison said his company would put 30 movies exclusively in theaters a year.

Under the Netflix deal, Warner Bros. Discovery would still spin off its TV networks, including CNN and TNT, into a separate company. The deal is expected to close no sooner than the third quarter of next year, but could face intense government scrutiny.

Paramount Skydance said its offer is good through 5 p.m. on Jan. 8.