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NEW YORK, Feb 26 (Reuters Breakingviews) - The battle is over; everyone lost. Streaming colossus Netflix (NFLX.O), opens new tab on Thursday declined, opens new tab to raise its offer for most of Warner Bros Discovery (WBD.O), opens new tab, ceding the Hollywood conglomerate to rival bidder Paramount Skydance (PSKY.O), opens new tab. Although the deal includes extraordinary safeguards, an $111 billion price tag risks keeping the losing streak going.

Warner Bros declared Paramount’s sweetened $31-per-share, all-cash entreaty superior to its previously agreed arrangement with Netflix, at $27.75 apiece. That transaction left behind fading broadcast networks to be spun off at questionable value and larded with debt.

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The fight became almost as much about mapping a clear path to closure as it was about money. Paramount’s ability to digest a far larger studio, its giant library of movies and intellectual property, and the accompanying TV assets raised serious doubts, including from Netflix and the Warner Bros board.

Boss David Ellison ultimately enlisted his billionaire father Larry to allay concerns in ways Netflix failed to do. Until the deal is sealed, the burden sits with the elder Ellison, Oracle’s (ORCL.N), opens new tab founder, whose shares in the cloud computing giant now effectively guarantee the bid.

For all that, even if Paramount achieves its whopping $6 billion of promised synergies, combining them with Warner’s projected operating income and taxing the sum implies a return of less than 6%. Cost-cutting may yet drive political opposition while consolidation will attract antitrust gadflies, regardless of how cozy the Ellisons are with President Donald Trump.

In the meantime, interest costs will be an overhang. They’re ominous, given that Warner Bros itself languished under the weight of immense borrowing after its own merger with Discovery nearly four years ago. Its shares fell by about half in the five years before deal talks surfaced.

One consolation is that WBD is finally turning things around. Streaming profitability doubled last year at the HBO crown jewel. Even so, Netflix probably dodged an M&A bullet; its shares jumped 10% after it dropped out of the bidding.

Some scars will last. The $360 billion company co-led by Ted Sarandos and Greg Peters has attracted the attention of authorities. A group of state attorneys general voiced concern, opens new tab about the merger plan while the Department of Justice initiated a probe, opens new tab focusing on Netflix’s potential market power.

Warner boss David Zaslav at least notched an astonishing premium of nearly 150%, with unusually strict terms, to make whole any investors that have stuck around. Of course, that generously overlooks the expensive opportunity costs, with the S&P 500 Index (.SPX), opens new tab jumping 80% over the past five years. The casualties of this war will linger.

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Context News

• Streaming giant Netflix said on February 26 that it had declined to raise its bid for Warner Bros Discovery. Earlier on the same day, the Hollywood conglomerate deemed a rival offer from peer Paramount Skydance to be superior.

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Editing by Jeffery Goldfarb; Production by Aditya Srivastav

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Jonathan Guilford

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Jonathan Guilford is Breakingviews U.S. Editor, based in New York. He has covered financial news across Europe and the United States for 10 years. He joined Reuters Breakingviews in 2021 from Dealreporter, where he led risk arb coverage strategy from New York while covering the technology, media and telecommunications space. He previously covered the European healthcare services market. He studied English and Italian at Royal Holloway, University of London.

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