Under the revised merger agreement, Netflix would pay Warner Bros shareholders US$27.75 per share in cash for the film and television studios, the extensive library and its HBO Max streaming service, instead of a mix of cash and stock.
“The merger consideration is a fixed cash amount to be paid by an investment-grade company, providing (Warner Bros) stockholders with certainty of value and liquidity immediately upon closing the merger,” Warner Bros said in Tuesday’s regulatory filing.
Previously, the streaming giant offered US$23.25 in cash and US$4.50 in Netflix stock to buy Warner Bros assets. Netflix shares have fallen almost 15% since announcing the merger on Dec 5, closing at US$88 per share on Friday – well below the US$97.91 floor price of the original bid.
The Warner Bros board also disclosed its valuation for Discovery Global, a planned spin-off that will contain television assets including CNN and TNT Sports and the Discovery+ streaming service.
The board has maintained that the Netflix merger deal is superior to Paramount Skydance’s US$30-per-share cash bid for the company because Warner Bros’ investors would retain a stake in the separately traded Discovery Global.
Warner Bros’ advisers used three separate approaches for valuing Discovery Global. The lowest share price they arrived at was US$1.33 per share, by applying a single value across the whole company. The high end of the range they determined was a price of US$6.86 a share, if the spin-off became involved in a future deal.
Paramount has said the cable spinoff central to the streaming giant’s offer is effectively worthless.
The rival bidder went to court on Jan 12 to expedite the disclosure of this information, so investors could evaluate the competing offers for Warner Bros. A Delaware court judge rejected the request, finding that Paramount had failed to demonstrate it would suffer irreparable harm from the alleged inadequate disclosures about Warner Bros’ cable TV business.
Warner Bros reiterated its reasons for rejecting the Paramount bid, saying its all-cash offer of US$30 a share was insufficient after factoring in the “price and numerous risks, costs and uncertainties.”
A merger with Netflix would leave the combined company with roughly US$85 billion in debt, compared with US$87 billion for Paramount. But Netflix is worth considerably more, with a market valuation of US$402 billion, compared with US$12.6 billion for Paramount.
The Netflix tie-up would be less leveraged – carrying a leverage ratio of under four – than a ratio of about seven with Paramount.
Netflix also has an investment-grade credit rating, whereas Paramount’s bonds are rated at junk levels by S&P and would likely come under further pressure, Warner Bros said in its filing.