Paramount launches a hostile takeover bid for Warner Bros. Discovery

By David Goldman, CNN

(CNN) — Paramount has gone straight to Warner Bros. Discovery’s shareholders with an all-cash offer for the company that it says is more valuable than Netflix’s deal announced Friday.

Paramount was widely expected to be the frontrunner for Warner Bros. But WBD opted instead for Netflix, which it said offered a more lucrative deal. The proposed marriage with Netflix caught Hollywood insiders by surprise — including Paramount CEO David Ellison, who still contends that his deal was the better offer.

“We’re sitting on Wall Street, where cash is still king,” Ellison told CNBC in an interview Monday. “We are offering shareholders $17.6 billion more cash than the deal they currently have signed up with Netflix. And we believe when they see what is currently in our offer, then that’s what they’ll vote for.”

Paramount offered $30 per share in an all-cash deal for the entire company, while Netflix offered $27.75 for Warner Bros. and HBO — $23.25 per share in cash and $4.50 in stock.

The math is tricky, but Netflix believes the eventual spinoff of WBD’s cable assets, including CNN — which is not included in the Netflix deal — will be worth several dollars per share. In its entirety, Netflix contends that its deal will ultimately be worth more than Paramount’s offer.

Paramount, unlike Netflix, is seeking to buy WBD in its entirety. It notes its offer is worth $108.4 billion for all of WBD, compared to $82.7 billion for Netflix’s offer, which doesn’t include the value of the company’s cable channels.

In accepting Netflix’s offer last week, WBD’s board clearly decided that deal was better. It has long argued that the cable assets will be worth more when spun off than combined with the movie studio and HBO, unlocking significant value for shareholders.

On Monday, Paramount said WBD shareholders should decide.

“WBD shareholders deserve an opportunity to consider our superior all-cash offer for their shares in the entire company,” Ellison 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.”

WBD’s (WBD) stock surged 7% to nearly $28 a share Monday, as investors anticipated a bidding war. Netflix may come back with an even more lucrative offer to counter Paramount’s bid. Paramount (PSKY) rose 4% and Netflix (NFLX) fell more than 3%.

Paramount appeals to shareholders

In addition to his contention that his deal offers WBD shareholders more overall value, Ellison also made the argument that Paramount’s offer stands a higher chance of regulatory approval. He noted to CNBC that Netflix’s offer would combine the No. 1 streamer with HBO Max, which is No. 3 — a potentially unappealing prospect for skeptical antitrust authorities.

Ellison touted his positive relationship with President Donald Trump (who similarly noted Sunday that he has a strong relationship with Netflix co-CEO Ted Sarandos).

“I’m incredibly grateful for the relationship that I have with the president,” Ellison told CNBC. “And I also believe he believes in competition. And when you fundamentally look at the marketplace, allowing the No. 1 streaming service to combine with the No. 3 streaming service is anticompetitive.”

Netflix has contended that its deal will pass antitrust scrutiny. It stands ready to refute Paramount’s marketplace claims by pointing to different metrics: Nielsen’s measurement of the industry shows Netflix with 8% of total TV usage time, slightly under Paramount’s 8.2%. By that measure, Netflix ranks No. 6 on the Nielsen gauge, with YouTube at No. 1 and Disney at No. 2.

Ellison also appealed to consumers and the industry. He told CNBC on Monday the Netflix-WBD deal would spell “the death of the theatrical movie business in Hollywood.”

“It’s bad for the consumer, it’s bad for the creative community,” Ellison said. “We’re sitting here trying to save it.”

This is a developing story and will be updated.

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CNN’s Brian Stelter contributed to this report.