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The future of Warner Bros. Discovery The company — its iconic film studio HBO Max and its cable channels, including CNN, TBS, TNT, Discovery and HGTV — could be at fault for what European regulators are thinking about Netflix.
That’s a pretty crazy turn for a deal that will determine the future of many valuable American sports rights – assets that, for the most part, have very little to do with Europe.
A quick refresher: WBD owns many live sports rights in the United States, including the rights to March Madness, Major League Baseball, the National Hockey League, NASCAR, the French Open, All Elite Wrestling, the College Football Playoff and others. But those rights wouldn’t go to Netflix WBD’s agreed deal to sell some of its assets to the streaming giant.
Netflix has agreed to pay $27.75 per share for film studio and streaming company WBD, but not for the cable channels that own the sports rights. If the deal is approved, those networks would be spun off into a separate publicly traded company called Discovery Global, which would also own Bleacher Report, House of Highlights and WBD’s other digital assets.
If WBD shareholders a. accept hostile takeover attempt out of Paramount SkydanceHowever – and if this deal is approved – the cable networks and associated sports would all fall under the Paramount umbrella. Paramount offered $30 per share for all of WBD – an offer the company passed directly to shareholders after WBD’s board rejected it.
Paramount on Thursday the deadline extended to its takeover offer that expired on Wednesday, giving WBD shareholders more time to weigh the option.
WBD responded with a statement, noting that less than 7% of all shareholders have tendered their shares to Paramount so far.
“Paramount is once again making the same offer that our board has repeatedly and unanimously rejected in favor of a superior merger agreement with Netflix. It is also clear that our shareholders approve, as more than 93% also reject Paramount’s substandard proposal,” WBD said. “We are confident in our ability to obtain regulatory approval for the Netflix merger and look forward to delivering the tremendous and secure value that our agreement will provide to Warner Bros. Discovery shareholders.”
Most of the media attention was focused on what President Donald Trump was doing might think about it a Netflix-WBD deal. Ted Sarandos, co-CEO of Netflix, met with Trump before the deal to gauge his opinion on a transaction. The Justice Department — theoretically a body independent of the presidency — will ultimately decide whether the deal poses antitrust problems and whether those problems can be mitigated with conditions or whether they are simply too big for a deal to go through.
Significantly less attention was paid to Europe, which also has to agree to a deal. And this is where any deal could fail.
Netflix is
WBD is confident its Netflix deal will receive EU approval, according to people familiar with the matter. A WBD source said there was a “95 percent certainty” that Europe would approve the deal, although the person acknowledged that Netflix may have to agree to certain conditions, such as agreeing to produce a certain amount of local content in Europe and promising to release films in theaters. Those of the EU Audiovisual Media Services Directive already requires video-on-demand streaming services to ensure that at least 30% of programs in EU countries are considered European works.
Paramount disagrees and believes a Netflix deal has very little chance of passing European regulators, people familiar with the matter say. At the same time, the company is working on its own EU regulatory aspects for the proposed acquisition.
It would be unusual, but not unprecedented, for European regulators to block a deal between two U.S.-based companies. Adobe dropped it $20 billion acquisition of cloud software company Figma in December 2023 after deciding there was “no clear path” to obtaining antitrust approval in Europe and the United Kingdom. The UK Competition and Markets Authority also forced Metas Facebook will sell Giphy, the largest provider of animated GIFs, to social networks in 2022.
It’s also worth noting that the European Commission allowed Amazon to acquire MGM, which is perhaps the best comparison to this deal in terms of comparables.
Paramount’s confidence rests on the continent’s track record of cracking down on tech companies and imposing antitrust actions and penalties Targeting Meta, Microsoft, Google, Apple and Amazon in recent years. Paramount executives believe EU regulators are taking a similar view of Netflix, based on recent conversations they have had with European officials, according to people familiar with the matter. Given the chance to stop a Big Tech company from gaining even more market power, Paramount executives believe Europe will seize it.
It is also possible that the EU takes a rather provincial approach to cinema owners and sees them as indispensable for culture and art. Both US and European cinema industry trade associations have done so expressed publicly her displeasure with a Netflix-Warner combination.
This week, Sarandos reiterated that Warner Bros. films will, as always, be released in theaters with a 45-day window.
“We are working closely with WBD and regulatory authorities, including the US Department of Justice and the European Commission. We are confident that we can obtain all approvals,” Sarandos said on Tuesday during Netflix earnings call. “When this deal closes, we will have the advantage of having a large, world-class theatrical distribution business with global box office revenues in excess of $4 billion. And we look forward to maintaining and further strengthening this business.”
The WBD board viewed the merger of two movie studios – Paramount and Warner – as a bigger regulatory hurdle than any problem presented by Netflix, according to people familiar with the matter. Still, WBD’s lawyers believed that both deals – Netflix-WBD and Paramount-WBD – were likely to be approved.
“The WBD board, with its regulatory advisors, has carefully considered the federal, state and international regulatory risks to both the Netflix merger and the (Paramount tender) offer,” WBD said in a December company statement. “The WBD Board believes that the necessary U.S. and foreign regulatory approvals can be obtained for each transaction and that any differences between respective regulatory risk levels are not material.”
On the subject of cinema, a Warner source told me that WBD actually sees Paramount as a potentially bigger problem than Netflix. That’s because WBD’s board and executives aren’t sure Paramount will have the money to produce 30 or more films a year (Paramount CEO David Ellison said promise), while eliminating 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. To get a better deal for WBD, Larry Ellison, David’s father and one of the richest men in the world, would have to raise more equity to lower the debt ratio of a combined company. The Board does not have confidence that Paramount can leverage its synergies while achieving its ambitious theatrical goals and moving forward with a leverage ratio of more than seven times estimated 2026 EBITDA.
This week, Netflix changed its offer for WBD’s assets from mostly cash to All cash. Simplifying the offer will allow WBD to move its shareholder meeting to approve the Netflix offer sooner – possibly as early as March, according to a person familiar with the matter.
Paramount is still considering whether to increase its offer or change its capital structure to re-include the WBD board, according to people familiar with the matter. It could also do nothing and wait to see whether it is right if regulators – be they European or American – block a Netflix deal.
With so much attention paid to the importance of live sports to the TV industry, it’s unusual to consider it as an afterthought. Paramount executives have argued that Discovery Global’s value should be $0 because of its high leverage ratio and early valuation Inclinationthe parent company of CNBC, which is down nearly 30% since its IPO this month.
In one Company registration As WBD published on Tuesday, WBD argued that Discovery Global’s value should be between $1.33 and $6.86 per share, depending on estimates.
Correction: This story has been updated to correct that Adobe has abandoned its $20 billion acquisition of cloud software company Figma.
