What you need to know about the Warner Bros. auction. An epic discovery

Earlier this year, the broadcasting and entertainment industry saw one of its biggest megadeals, surprising industry observers. Not only is it historic in its size, but it is predicted to disrupt Hollywood and the media business as we know it.

After years of Warner Bros. Discovery is struggling under the weight of billions of dollars in debt, combined with declining cable viewership and intense competition from broadcast platforms, the company has been considering major strategic changes, including selling its entertainment assets to one of its rivals.

Several major players saw potential in acquiring the media giant, and in December, Netflix announced it would buy WBD studios and broadcasts for $82.7 billion.

But in a surprise eleventh-hour move in late February, David Ellison-run Paramount won the bidding war, offering $111 billion to acquire all of Warner Bros.’ assets. Paramount itself was recently acquired by Ellison with significant support from his father, Larry Ellison – the chairman of Oracle, the sixth richest person in the world, and Trump’s biggest donor.

Paramount’s offer was approved by the US Department of Justice (DOJ) in June. However, a judge recently suspended the deal after a hearing on July 13 by a group of 12 state attorneys general.

Let’s take a closer look at what’s happening, what’s at stake, and what may come next.

What happened so far?

It all started back in October when Warner Bros. Discovery (WBD) reveals it is looking at a possible sale after receiving unsolicited interest from several major players in the industry.

The bidding process quickly became competitive, and Paramount and Comcast emerged as the main contenders, with Paramount initially considered the frontrunner.

However, the WBD board ultimately decided that the offer from streaming giant Netflix was too attractive. Netflix has offered $82.7 billion for Warner’s film, television, and streaming assets.

And so the bidding war began. Paramount believed its offer, about $108 billion for all of Warner’s assets, was better than Netflix’s offer, which focuses on studios and streaming. To sweeten the deal, Netflix amended its deal in January to offer $27.75 per share to Warner Bros.

Paramount persisted in its efforts to acquire WBD. However, Warner’s board repeatedly rejected its offers, citing concerns about Paramount’s heavy debt load and the additional risk associated with its proposal, including concerns about the suite of investors bankrolling Paramount’s bid, which included Saudi, Qatari, and Abu Dhabi private equity funds. The board noted that the Paramount offer would have left the combined company saddled with $87 billion in debt, a risk they were unwilling to take at the time.

In January, Paramount filed a lawsuit seeking more information about the Netflix deal. A month later, the company sought to sweeten its deal by announcing that it would give $0.25 of a “markup fee” per share to WBD shareholders for each quarter if the deal fails to close by December 31, 2026. It also said it would pay $2.8 billion in cash if Warner backed out of its deal with Netflix.

Then, in a last-ditch effort to secure a deal, Paramount raised its offer to $31 per share in February. This prompted the WBD board to extend discussions with Paramount about a possible deal, considering it to be the best offer. Netflix refused to increase their bid and withdrew from negotiations.

“The transaction we negotiated would create shareholder value with clear regulatory approval,” Netflix CEO Ted Sarandos and Greg Peters said in a statement on February 26. “However, we have been disciplined, and at the price required to match Paramount Skydance’s recent offer, the deal is no longer financially attractive to Paramount Skydance.”

In addition to the billions Paramount already has in debt, the company will also assume about $33 billion in debt to Warner Bros. Discovery has it under contract. The deal will be backed by a $54 billion debt obligation from Bank of America, Merrill Lynch, Citi, and Apollo Global Management, as well as a $45.7 billion equity stake in Larry Ellison.

Regulatory constraints and other concerns

In addition to the assumption of large debt that imposes a large financial burden, Paramount faces several other obstacles in its dealings with WBD that may affect the success of the project.

First, Ellison warned of significant job cuts expected in the near future. There is already widespread concern among critics about potential job losses and lower wages.

Ellison is also a controversial figure in the industry, and his ownership of CBS News has been seen as sympathetic and supportive of the administration of Donald Trump, whose father, Larry Ellison, is a major donor. Under Ellison’s ownership of Paramount, reporting critical of the administration was pushed back or received more scrutiny from Ellison or his appointed head of CBS News, conservative activist Bari Weiss.

This led to some concern for Warner CNN staff. Trump personally sought concessions from media outlets critical of him, including paying CBS $16 million, before his FCC agreed to take over Ellison for Paramount. Before Netflix pulled out of the deal, Trump pressured the company to fire former Biden White House chief of staff Susan Rice from its board. He made public his intentions to bring CNN to heel under new owners.

Regulatory testing is another hurdle. A merger of such a large scale has drawn the attention of lawmakers.

For example, California Attorney General Rob Bonta said in a statement on February 26 that “the Hollywood duo has not removed the legal scrutiny – the California Department of Justice has an open investigation, and we intend to be proactive in our review.”

A day before Netflix pulled out, it was revealed that a coalition of 11 federal attorneys had urged the US Department of Justice (DOJ) to review the merger under concerns it would harm competition and increase subscription prices. This comes months after the US Elizabeth Warren, Bernie Sanders, and Richard Blumenthal expressed their concerns to the Antitrust Division of the Department of Justice, warning that such a merger could have negative consequences for consumers and the industry as a whole. Senators argue that the merger could give the new media giant greater market power, enabling it to raise prices for consumers and stifle competition.

Although the DOJ approved the deal in June, a coalition of 12 state attorneys general filed a lawsuit on July 13 to block the merger. The lawsuit argues that it would reduce competition and harm movie theaters, cable distributors, and viewers. The coalition is led by Bonta, with Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, and Washington.

In response, US District Judge Araceli Martínez-Olguín issued a 14-day stay.

When is the deal expected to close?

Paramount originally intended to complete its purchase of WBD in early July. However, work has now been temporarily suspended until August 3, with a hearing set to determine whether the suspension will be extended.

Stay tuned…