Warner Bros Discovery Rejects Paramount’s $60 Billion Buyout Bid

Warner Bros Discovery announced on October 21, 2023, that its board has rejected a buyout offer from Paramount Skydance valued at nearly US$60 billion. The board deemed the proposal, which included a cash payment of about US$24 per share, as insufficient. This decision comes amid growing interest from various potential buyers in the media sector.

The Paramount Skydance offer aimed to acquire Warner Bros Discovery’s extensive assets, including its film and television studios, major cable networks such as CNN, and the HBO Max streaming platform. Neither Warner Bros Discovery nor Paramount has publicly commented on the rejected proposal. Following the announcement, Warner Bros Discovery’s shares surged approximately 10 percent during afternoon trading.

Potential Buyers Eye Warner Bros Discovery’s Assets

Sources have indicated that Comcast is likely to evaluate the assets of Warner Bros Discovery, while Netflix has also shown interest in a potential acquisition. Earlier reports have suggested that David Ellison, chief executive of Paramount Skydance, has engaged in discussions about acquiring the entire company. Warner Bros Discovery, known for its blockbuster franchises such as Harry Potter and Game of Thrones, announced plans in June to restructure its operations. The restructuring will separate its streaming business from traditional cable networks in a bid to enhance growth and efficiency.

The board is currently considering a range of options, including maintaining the planned separation, selling the entire company, or pursuing distinct transactions for its Warner Bros or Discovery Global segments. Another alternative under review involves merging Warner Bros and spinning off Discovery Global.

Impact on the Entertainment Industry

A potential sale or restructuring of Warner Bros Discovery could signify one of the most significant changes in the entertainment industry in years. Such a move might compel other legacy media companies to reassess their own business models. The competition from streaming services has burdened traditional broadcasters with escalating content costs, debt, and fragmented audiences.

Acquiring Warner Bros Discovery would provide a buyer with control over a major Hollywood studio and a leading streaming platform. However, they would also inherit approximately US$35 billion in debt. Warner Bros Discovery’s current market valuation stands at about US$45 billion, reflecting a more than 46 percent increase since early September when reports of Paramount’s interest first emerged.

Analysts have provided insights into the valuation and strategic considerations for potential suitors. Ross Benes, a senior analyst at eMarketer, noted that Paramount is the most likely candidate to pursue the acquisition. He suggested that a purchase by Netflix would be more prudent after the anticipated split, given that the studio’s assets would hold greater value for the streaming service than the television networks.

According to Jessica Reif Ehrlich, a research analyst at Bank of America, the total value of Warner Bros Discovery is estimated to be around US$30 per share. She emphasized the company’s rich portfolio of intellectual property, including titles such as DC, Lord of the Rings, and Game of Thrones, making it an attractive acquisition target.

In the meantime, Comcast is preparing to spin off its NBC Universal cable channels into a new entity called Versant later this year. Seth Shafer, a principal analyst at S&P Global Market Intelligence Kagan, remarked that potential buyers, including Paramount, Comcast, Netflix, Amazon, and Apple, might find it advantageous to acquire the entirety of Warner Bros Discovery rather than waiting to purchase only streaming and studio assets.

David Ellison’s efforts to acquire Warner Bros Discovery follow his family’s recent expansion of their media influence, especially amid a favorable regulatory environment in the United States. Analysts point to the financial backing from his father, Larry Ellison, co-founder of Oracle and one of the world’s wealthiest individuals, as a significant factor in pursuing major acquisitions. Furthermore, the elder Ellison’s connections with influential political figures could mitigate regulatory concerns typically associated with large mergers.

As the landscape of the entertainment industry continues to evolve, the future of Warner Bros Discovery remains uncertain. The board’s decisions in the coming weeks will likely have implications not only for the company but also for the broader media sector.