Netflix has ample room to increase its offer in battle for Warner Bros - reports

Netflix NFLX.O has ample cash and could bump up its offer for HBO Max owner Warner Bros Discovery if competing bidder Paramount Skydance PSKY.O increases its own offer, two people with knowledge of the matter said.

The two media giants have been locked in a heated rivalry over Warner Bros WBD.O and its storied catalogue, which includes iconic franchises like "Harry Potter", "Game of Thrones", DC Comics and Superman.

Though Warner Bros is moving forward with a March 20 shareholder vote on Netflix's offer, it has given Paramount a week to come up with a more compelling bid.

Netflix has bid $27.75 a share, or $82.7 billion, for Warner Bros' studio and streaming businesses while Paramount has offered $30 a share, or $108.4 billion, for the whole company, which includes Discovery Global that houses CNN, HGTV and other TV assets.

Netflix and Warner Bros declined to comment.

The creator of "Stranger Things" is sitting on a lot of dry powder that gives it some flexibility to up the ante, the people said, holding about $9.03 billion in cash and cash equivalents on its balance sheet as of December 31.

MONDAY DEADLINE

Warner Bros rejected Paramount’s latest hostile takeover bid on Tuesday but gave the rival studio until the end of Monday to submit a “best and final” offer. Paramount enticed the board to the table after informally broaching a $31 per share offer, Warner Bros said.

“Netflix still looks to be in the driving seat, but that can quickly shift,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “Price will likely be the deciding factor — Warner’s concerns around funding and regulatory risk are real, but at a high enough number, they become secondary."

Britzman expects Netflix will counter any improved offer from Paramount. "But the real twist is that these deals were never apples‑to‑apples, and it may ultimately come down to how much value the board and shareholders assign to the network business that Netflix would leave behind," he said.

Paramount said it would continue to push the tender offer it has launched for the studio, oppose the "inferior" Netflix merger and still plans to nominate directors for the upcoming Warner Bros annual meeting.

All eyes are now on whether the CBS-parent improves its offer, which Netflix is allowed to match under the terms of the merger agreement, according to Warner Bros.

Warner Bros Chairman Samuel DiPiazza Jr. and CEO David Zaslav said in a letter sent to the Paramount board on Tuesday that "we continue to recommend and remain fully committed to our transaction with Netflix".

BOARD CONCERNS

Paren Knadjian, partner at Eisner Advisory Group, said Paramount's persistence suggests it thinks it can win.

“Board‑level concerns around financing structure, timing and regulatory approval meaningfully detract from the attractiveness of Paramount’s proposal, irrespective of headline valuation," he said.

Paramount last week proposed paying Warner Bros investors additional cash for every quarter the deal does not close after this year, and said it would cover the $2.8 billion breakup fee that Warner Bros would owe Netflix if it withdrew from their agreement. But that was not enough for Warner Bros, which said the revised terms still did not meet the threshold for what its board would deem a superior proposal.

In a letter, the board said Paramount’s offer left several issues unresolved, including responsibility for a potential $1.5 billion junior lien financing fee, how the transaction would proceed if debt financing fell through, and whether equity funding led by Larry Ellison was fully committed.

-Amy-Jo Crowley and Milana Vinn/Reuters