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The future of Discovery of Warner Bros. The company – its iconic movie studio, HBO Max, and cable networks including CNN, TBS, TNT, Discovery and HGTV – could come down to what European regulators think Netflix.
That’s a pretty crazy twist for a deal that will dictate the future of many valuable U.S. sports rights — assets that, for the most part, have very little to do with Europe.
A quick reminder: WBD owns numerous live sports rights in the United States, including March Madness, Major League Baseball, National Hockey League, NASCAR, Roland Garros, All Elite Wrestling, College Football Playoffs and others. But those rights would not revert to Netflix under the deal WBD agreed to sell some of its assets to the streaming giant.
Netflix agreed to pay $27.75 per share for the WBD movie studio and streaming businesses, but not for the cable networks, which own the sports rights. If the deal is approved, these networks would be consolidated into a separate publicly traded entity called Discovery Global, which would also own Bleacher Report, House of Highlights and WBD’s other digital assets.
If WBD shareholders accept an attempted hostile takeover of Paramount SkydanceHowever, if this deal is approved, the cable networks and associated sports would all fall under Paramount. Paramount offered $30 per share for all of WBD – an offer it took directly to shareholders after WBD’s board rejected it.
Paramount on Thursday extended the deadline for its tender offer — which expired Wednesday — giving WBD shareholders more time to weigh the option.
WBD responded with a statement noting that less than 7% of all shareholders have so far tendered their shares to Paramount.
“Once again, Paramount continues to make the same offer that our board has repeatedly and unanimously rejected in favor of a superior merger deal with Netflix. It is also clear that our shareholders agree, with over 93% also rejecting Paramount’s inferior plan,” WBD said. “We are confident in our ability to obtain regulatory approval for the merger with Netflix and look forward to delivering the enormous and certain value that our deal will bring to Warner Bros. Discovery shareholders.”
Media attention has focused on what President Donald Trump might think of a Netflix-WBD deal. Netflix co-CEO Ted Sarandos met with Trump before the deal to gauge his sentiment on a transaction. The Justice Department — in theory a body independent of the presidency — will ultimately decide whether or not the deal presents antitrust issues, and whether those issues can be resolved under certain conditions or whether they are simply too important for a deal to go through.
Much less attention has been paid to Europe, which will also have to approve a deal. And that’s where either deal could fail.
Netflix is a global company that generated about $14.5 billion in revenue last year in the so-called EMEA region, or Europe, Middle East and Africa, or about 32% of total sales.
WBD is confident its Netflix deal will win EU approval, according to people familiar with the matter. A WBD source said there was a “95% certainty” that Europe would approve the deal, although the person acknowledged that Netflix might have to agree to certain conditions, such as agreeing to produce a certain amount of local content in Europe and promising to release films theatrically. The EU’s Audiovisual Media Services Directive already requires video-on-demand streaming services to ensure that at least 30% of programs from EU countries qualify as European works.
Paramount disagrees and believes a deal with Netflix is very unlikely to pass European regulators, according to people familiar with the matter. At the same time, it is working on its own European regulatory angles for its takeover project.
It would be unusual, but not unprecedented, for European regulators to block a deal between two U.S.-based companies. Adobe has abandoned its $20 billion acquisition of cloud software company Figma in December 2023 after deciding there was “no clear path” to winning approval from antitrust authorities in Europe and the United Kingdom. The UK Competition and Markets Authority also forced The meta Facebook will sell Giphy, the largest provider of animated gifs to social networks, in 2022.
It’s also worth noting that the European Commission cleared Amazon to acquire MGM, which is perhaps the closest comparison in terms of comparable companies to this deal.
Paramount’s confidence stems from the fact that the continent has been tough on tech companies, with antitrust crackdowns and sanctions targeting Meta, Microsoft, Google, Apple and Amazon in recent years. Paramount executives believe European regulators view Netflix the same way, based on recent conversations they’ve had with European officials, according to people familiar with the matter. If they have the chance to stop a big tech company from gaining even more market power, Paramount executives believe Europe will take it.
The EU could also be more parochial in how it treats cinema owners, seeing them as essential to culture and art. American and European film industry trade associations have publicly expressed their dissatisfaction with a Netflix-Warner combination.
This week, Sarandos reiterated that Warner Bros. films. would hit theaters with a 45-day window – as they always have.
“We are working closely with WBD and regulatory authorities, including the U.S. Department of Justice and the European Commission. We are confident that we will be able to obtain all approvals,” Sarandos said Tuesday during Netflix’s earnings conference call. “When this deal closes, we will have the benefit of having a large-scale, world-class motion picture distribution business with more than $4 billion in global box office. And we are excited to maintain that and further strengthen this business.”
WBD’s board viewed the merger of two movie studios — Paramount and Warner — as a bigger regulatory hurdle than any issue presented by Netflix, according to people familiar with the matter. Nonetheless, WBD’s lawyers determined that both deals – Netflix-WBD and Paramount-WBD – would likely be approved.
“The WBD Board of Directors carefully considered the federal, state and international regulatory risks for the Netflix merger and the [Paramount tender] offering with its regulatory advisors,” WBD said in a December filing. “WBD’s board of directors believes that each transaction is capable of obtaining the necessary U.S. and foreign regulatory approvals and that any difference between the respective regulatory risk levels is not material.”
On the issue of movie theaters, a Warner source told me that WBD views Paramount as a potentially bigger problem than Netflix. Indeed, WBD’s board and executives are unsure whether Paramount will have the money to produce 30 or more films a year (a promise from Paramount CEO David Ellison), while paying down 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 create a superior deal for WBD, Larry Ellison, David’s father and one of the richest men in the world, would have to invest more money in equity to reduce the leverage ratio of a combined company. The board does not believe Paramount can realize its synergies while meeting its aggressive theatrical goals and moving forward with a leverage ratio greater than seven times estimated 2026 EBITDA.
This week, Netflix changed its offer for WBD’s assets from a mostly cash offer to an all-cash offer. Simplifying the offer allows WBD to move its shareholder meeting to approve Netflix’s offer earlier — perhaps as early as March, according to a person familiar with the matter.
Paramount is still considering whether to increase its offer or change the capital structure to re-engage WBD’s board, according to people familiar with the matter. It could also do nothing and wait to see whether regulators – European or American – are right to block a deal with Netflix.
With so much attention given to the importance of live sports to the television industry, it’s unusual to view them as an afterthought. Paramount executives argued that Discovery Global’s value should be $0 based on its high leverage ratio and early valuation of Slopethe parent company of CNBC, which has lost nearly 30% since going public this month.
In a corporate filing released Tuesday, WBD argued that Discovery Global should be valued between $1.33 per share and $6.86 per share, according to estimates.
Correction: This story has been updated to correct that Adobe has abandoned its $20 billion acquisition of cloud software company Figma.