RPT-BREAKINGVIEWS-Paramount inches its way to Warner Bros deal

By Jennifer Saba

NEW YORK, Feb 10 (Reuters Breakingviews) - Paramount’s PSKY.O quest to clinch Warner Bros Discovery WBD.O can be measured in inches. The "Mission: Impossible" studio owned by the Ellison family improved its takeover bid for the rival entertainment empire, but only by dripfeeding out extra cash over time and funding some extra fees. These baby steps, however, will not be enough to oust Netflix NFLX.O as the chosen buyer.

The sweeteners are certainly welcome, in part by acknowledging that time is money. They include about $650 million in cash for WBD shareholders each quarter after December 31, 2026, that the deal fails to secure regulatory approval. Paramount also said it would cover the $2.8 billion termination fee WBD would owe Netflix for scrapping their agreement, among other minor tweaks.

Although it may put additional pressure on WBD boss David Zaslav, the baseline $108 billion deal, at $30 a share, hasn't changed. It does call attention to the idea that the more debt is bundled up with the studio and streaming divisions that Netflix wants, the less cash shareholders will pocket. The consideration could fall as low as $21.23 per share, per Paramount’s calculations, a discount of more than 20%.

The path for Netflix to persuade trustbusters is also precarious given its dominant position in streaming TV. Moreover, Comcast’s recent spinoff of its cable networks, Versant Media VSNT.O, doesn't bode well for the valuation of WBD's own portfolio that it plans to list independently.

Even so, Zaslav has been able to hold his ground and stick with the Netflix deal so far. Paramount isn't getting very far by limping along. To make real strides, it will take a knockout bid.

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CONTEXT NEWS

Paramount said on February 10 that it amended its $30-a-share takeover bid for Warner Bros Discovery by agreeing to pay shareholders an extra 25 cents a share each quarter the deal fails to close and to fund the $2.8 billion break fee the target would owe Netflix for calling off their agreement.

The so-called ticking fee would start on December 31, 2026.