Bidding War Intensifies as Paramount Challenges Netflix Deal

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The competitive landscape for streaming giant Netflix has grown more contentious. In a move that reignited acquisition tensions, Warner Bros. Discovery unexpectedly resumed negotiations with its rival, Paramount Skydance, this Tuesday. This development has placed Netflix, which is pursuing its own merger with Warner Bros. Discovery, under significant pressure. In response, Netflix has granted Paramount a seven-day window, expiring February 23, to submit a revised counterproposal.

Investor confidence appears shaken by the potential collapse of the substantial $82.7 billion transaction involving Netflix. This uncertainty has weighed heavily on Netflix's equity, which has declined by 17.9% since the start of the year. Prominent investor Gary Black described the ongoing deal ambiguity as a "burden" for the stock, though he also noted it presents a "potentially asymmetric return opportunity."

The shares concluded Tuesday's trading session at $77. Over the preceding 21 trading days, the cumulative loss reached 16%. Despite this volatility, investment firm Coatue increased its stake in Netflix during the fourth quarter.

Paramount's Aggressive Countermeasures

According to corporate documents, a senior Paramount executive verbally indicated to the Warner Bros. Discovery board a willingness to pay $31 per share, explicitly stating this was not a final bid. This surpasses its current public offer of $30 per share.

To further sweeten the deal, Paramount has offered to assume the $2.8 billion breakup fee that Warner Bros. Discovery would owe Netflix if their agreement fails. Additionally, Paramount proposed quarterly "ticking fees" of 25 cents per share for each quarter beyond January 1 during which the transaction remains incomplete.

Netflix's Strategic Defense

Netflix Co-CEO Ted Sarandos publicly criticized Paramount's tactics during a CNBC interview, accusing the company of "creating massive noise and flooding the zone with confusion." In an official statement, Netflix defended its conduct throughout the strategic review process, characterizing its actions as constructive and responsive?a stance it described as being "in stark contrast to Paramount Skydance."

Netflix retains certain participation rights should Paramount formalize an improved offer. The company remains committed to its existing arrangement with Warner Bros. Discovery. The Warner Bros. Discovery board continues to recommend the Netflix merger unanimously, with a shareholder vote scheduled for March 20.

The coming days leading to the February 23 deadline are critical. The market awaits clarity on whether Paramount can present a proposal compelling enough to alter the strategic calculus of the Warner Bros. Discovery board.