A version of this article first appeared in the CNBC Sports Newsletter with Alex Sherman. This newsletter brings you the biggest news and exclusive interviews from the world of sports business and media. Sign up to receive future editions directly to your inbox.
future of warner bros discovery The company’s iconic movie studio, HBO Max, and its cable networks, which include CNN, TBS, TNT, Discovery and HGTV, may come down to what European regulators have in mind. Netflix.
This is a pretty crazy development for a deal that will determine the future of many valuable American sports rights, assets that in most cases have little to do with Europe.
Quick review: WBD owns the live broadcast rights to many U.S. sports, including March Madness, Major League Baseball, National Hockey League, NASCAR, French Open, AEW, and College Football Playoff. However, under WBD’s agreed-upon deal to sell some of its assets to the streaming giant, those rights will not pass to Netflix.
Netflix agreed to pay $27.75 per share for the WBD movie studio and streaming business, but not the cable network that owns the sports rights. If the deal is approved, those networks will be spun off into a separate publicly traded company called Discovery Global, which will also own Bleacher Report, House of Highlights and WBD’s other digital assets.
If WBD shareholders accept a hostile takeover attempt paramount skydanceHowever, if the deal is approved, the cable network and all related sports would come under Paramount’s umbrella. Paramount made a $30 per share bid for all of WBD, which it offered directly to shareholders after being rejected by WBD’s board of directors.
Paramount on Thursday extended the deadline for its tender offer, which had expired on Wednesday, to give WBD shareholders time to consider their options.
In response, WBD noted in a statement that less than 7% of all shareholders have tendered their shares to Paramount to date.
“Once again, Paramount continues to make the same offer that the board has repeatedly and unanimously rejected in favor of a superior merger agreement with Netflix. And with over 93% rejecting Paramount’s inferior plan, it is clear that shareholders agree,” WBD said. “We are confident in our ability to obtain regulatory approval for the Netflix merger and look forward to delivering significant and robust value to Warner Bros. Discovery shareholders with this deal.”
Most of the media attention has focused on what US President Donald Trump thinks about the Netflix-WBD deal. Netflix co-CEO Ted Sarandos met with President Trump ahead of the deal to gauge Trump’s feelings about the deal. The U.S. Department of Justice, an agency theoretically independent of the president, will ultimately decide whether the deal raises antitrust problems and whether those problems can be remedied with conditions or are simply too big to pass.
Much less attention has been paid to Europe, where the agreement also needs to be approved. And that’s where either deal could fall apart.
Netflix is a global company that generated approximately $14.5 billion in revenue in the EMEA (Europe, Middle East, Africa) region last year, accounting for approximately 32% of its total revenue.
Sources said WBD is confident that its deal with Netflix will receive EU approval. A WBD official said there was a “95% certainty” that Europe would approve the deal, but the official acknowledged that Netflix may need to agree to certain conditions, such as agreeing to produce a certain amount of local content in Europe and committing to releasing the film theatrically. The EU’s Audiovisual Media Services Directive already requires video-on-demand streaming services to ensure that at least 30% of programs from EU countries qualify as European productions.
Paramount disagrees and believes the deal with Netflix has little chance of passing European regulators, according to people familiar with the matter. At the same time, the company is approaching its takeover proposal from a unique EU regulatory angle.
While it is unusual for European regulators to block a transaction between two U.S.-based companies, it is not unprecedented. adobe Britain’s Competition and Markets Authority, which halted its $20 billion takeover of cloud software company Figma in December 2023 after finding there was “no clear path forward” to obtaining antitrust approval in Europe and the United Kingdom, similarly forced it. meta Facebook will sell Giphy, the social network’s largest supplier of animated GIFs, in 2022.
It’s also worth noting that the European Commission cleared Amazon’s acquisition of MGM. This is probably the closest thing to this deal in terms of comparable businesses.
Paramount’s credibility stems from the continent’s track record of being tough on technology companies, including antitrust crackdowns and penalties against Meta. microsoft, Google, apple And in recent years, Amazon. Paramount executives believe EU regulators view Netflix similarly, based on recent conversations with European officials, the people said. Given a chance to stop Big Tech companies from gaining further market power, Paramount executives believe Europe will get it.
The EU may also become more parochial in its treatment of cinema owners, seeing them as essential to culture and the arts. Film industry trade groups in the United States and Europe have publicly expressed their displeasure with the Netflix-Warner combination.
Sarandos reiterated this week that Warner Bros. movies will continue to be released in theaters over a 45-day window.
“We are working closely with WBD and our regulators, including the U.S. Department of Justice and the European Commission, and we are confident that we can secure all approvals,” Sarandos said on Netflix’s earnings call Tuesday. “Once this transaction closes, we will have the benefit of having a large, world-class theatrical distribution business with over $4 billion in global box office revenue, and we are excited to retain and further strengthen that business.”
The WBD board views the combination of two film studios, Paramount and Warner, as a greater regulatory hurdle than anything posed by Netflix, according to people familiar with the matter. Still, WBD’s lawyers determined that both the Netflix and WBD and Paramount and WBD deals are likely to be approved.
“The WBD board carefully considered the federal, state, and international regulatory risks of both the Netflix merger and the (Paramount) tender offer with its regulatory advisors,” WBD said in a December corporate filing. “The WBD Board is of the view that each transaction is capable of obtaining the necessary U.S. and foreign regulatory approvals and that the differences between their respective regulatory risk levels are immaterial.”
As for the movie theater issue, a Warner source told me that WBD actually sees Paramount as potentially a bigger problem than Netflix. That’s because WBD’s board and executives aren’t sure Paramount has the money to make more than 30 films a year (as promised by Paramount CEO David Ellison) while paying off billions of dollars in debt and targeting $6 billion in cost savings.
This is why the structure of the Paramount deal is so important to WBD. For a deal to work out in WBD’s favor, David’s father, Larry Ellison, one of the world’s richest men, would need to put more money into the stock to lower the combined company’s leverage ratio. The board does not believe that Paramount will be able to achieve synergies and move forward with leverage ratios in excess of 7x estimated 2026 EBITDA while achieving aggressive theatrical targets.
This week, Netflix changed its offer for WBD’s assets from mostly cash to all cash. Simplifying the bid will allow WBD to speed up its shareholder meeting to approve Netflix’s proposal, possibly as early as March, the people said.
Paramount is considering whether to raise its bid or change its capital structure to re-engage with WBD’s board, the people said. It could also do nothing about the European or US regulators blocking the deal with Netflix and wait to see if it’s the right thing to do.
At a time when the importance of sports broadcasts is attracting so much attention for the television industry, it is unusual for sports broadcasts to be considered an afterthought. Paramount executives argue that Discovery Global should be worth $0, based on Discovery Global’s high leverage ratio and the initial valuation of CNBC’s parent company Versant, which has fallen about 30% since hitting the public market this month.
In a corporate filing released Tuesday, WBD argued that Discovery Global should be worth between $1.33 and $6.86 per share, depending on estimates.
Correction: This article has been updated to correct that Adobe has called off its $20 billion acquisition of cloud software company Figma.
