Netflix has walked away from its planned takeover of Warner Bros Discovery, declining to raise its offer for the media conglomerate’s storied Hollywood studios and streaming business after it determined a sweetened rival offer from Paramount Skydance to be “superior”.
In a statement on Thursday evening, the Netflix co-chief executives Ted Sarandos and Greg Peters said: “At the price required to match Paramount Skydance’s latest offer, the deal is no longer financially attractive.”
In its revised offer, Paramount offered $31 (£23) a share for the company, up from $30; a $7bn regulatory termination fee if the merger is not approved; and a “ticking fee” amounting to about $650m in cash each quarter beginning after September.
Netflix was given four business days to beat Paramount’s revised offer but quickly decided against doing so.
“We believe we would have been strong stewards of Warner Bros’ iconic brands, and that our deal would have strengthened the entertainment industry and preserved and created more production jobs in the US,” Sarandos and Peters said.
“But this transaction was always a ‘nice to have’ at the right price, not a ‘must have’ at any price.”
David Zaslav, the president and chief executive of Warner Bros Discovery, released a statement on Thursday evening calling Netflix “a great company” and praising its leadership.
Netflix’s unwillingness to revise its $82.7bn offer for the studio and streaming assets of Warner Bros Discovery (WBD) means the Ellison family, who owns Paramount Skydance, are now expected to acquire the entirety of the company, including the cable news network CNN.
“Once our board votes to adopt the Paramount merger agreement, it will create tremendous value for our shareholders,” Zaslav said. “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.”
David Ellison, the chief executive of Paramount and a longtime supporter of Donald Trump, said earlier on Thursday that his company was pleased the Warner Bros board had “unanimously affirmed the superior value of our offer”, which he said delivered “WBD shareholders superior value, certainty and speed to closing”.
In response to the potential Paramount Skydance-Warner Bros merger, the US senator Elizabeth Warren told the Guardian it was “an antitrust disaster threatening higher prices and fewer choices for American families”.
She said: “What did Trump officials tell the Netflix CEO today at the White House? A handful of Trump-aligned billionaires are trying to seize control of what you watch and charge you whatever price they want. With the cloud of corruption looming over Trump’s Department of Justice, it’ll be up to the American people to speak up and state attorneys general to enforce the law.”
Netflix’s announcement that it was backing away from the deal came after Sarandos held meetings in Washington with Trump administration officials.
The merger was expected to receive close regulatory scrutiny, including a thorough review by the Department of Justice to determine whether it posed a threat to competition in the entertainment industry.
In their statement, Sarandos and Peters thanked Warner Bros Discovery “for running a fair and rigorous process”.
They added: “The transaction we negotiated would have created shareholder value with a clear path to regulatory approval. However, we’ve always been disciplined, and at 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.
“We will continue to do what we’ve done for more than 20 years as a public company: delight our members, profitably grow our business, and drive long-term shareholder value.”
Officials in the White House have long preferred the bid from Paramount, considering that the Ellison family has a friendly relationship with the president.
However, regulatory scrutiny will now focus on the combination with Paramount. Last week, the California Department of Justice opened an investigation into the takeover, regardless of the victor.
Rob Bonta, the state’s attorney general, said: “It is not a done deal. These two Hollywood titans have not cleared regulatory scrutiny … and we intend to be vigorous in our review. The proposed WBD transactions must receive a full and robust review, and California is taking a very close look.”
Warner Bros Discovery shareholders will still have to approve Paramount’s merger with the company, although as the only remaining bidder that may only be a formality.
Ben Barringer, the head of technology research at the investment management firm Quilter Cheviot, said a Paramount takeover would probably not “shake the media industry out as much as if Netflix had been successful”.
However, job cuts appear inevitable, with $3bn already announced after the merger of Skydance and Paramount, and a further $6bn in post-WBD takeover synergies revealed in filings.
Shares in Netflix rose by as much as 10% in after-hours trading, as investors expressed relief, having been concerned about issues including the scale, strategic fit and regulatory hurdles of a WBD takeover.
The promise of super-scale in the film and TV content market, and the chance to create a streaming giant to compete with Netflix, Amazon and Disney, sent Paramount’s share price rising almost 9% in pre-market trading.
Robert Fishman, a senior analyst at MoffettNathanson, said winning the bidding war was crucial for Paramount, which has lined up $54bn in debt to complete the takeover.
“This result confirms our ongoing view that WBD was a necessity for Paramount Skydance while Netflix was being opportunistic,” he said.
