Paramount Skydance is now the front-runner to win control of Warner Bros. Discovery -- the latest plot twist in a messy takeover battle that will upend Hollywood.
Warner said on Tuesday that its board of directors had decided that Paramount's $31 a share bid "could reasonably be expected to lead" to a proposal superior to the deal it agreed with Netflix in December.
If Warner does decide that Paramount's proposal is better, Netflix would have a four-day window to decide to match it. Netflix's most recent, all-cash offer was $27.75 a share for Warner's streaming and studios assets, with the Discovery Global cable business being spun out to investors. For now, the board is recommending in favor of that deal.
Netflix stock rose 4.9% to $81.87 on Wednesday. Paramount climbed 0.7% to $10.47. Warner slipped 0.86% to $28.9.
The most likely outcome is that the video streamer will walk away from the bidding war. Prediction markets suggest Paramount is in the driving seat: Polymarket's event-based contracts implies a 46% chance it closes the deal, compared with odds of 41% for Netflix.
Netflix likely sees Warner Bros. as "nice-to-have (and to keep out of others' control) but not a need-to-have," Seaport Research Partners analyst David Joyce said late Tuesday in a research note.
"This could be a graceful way for Netflix to exit, which their shareholders will likely receive positively -- although we do not expect sentiment to return Netflix to its prior highs from last summer," he added. The stock would need to rally 71% to reclaim the record high it hit in late June.
Shares have slumped 24% since the Netflix-Warner deal was announced on Dec. 5, with investors fretting that Netflix may end up leveraging what had been a strong balance sheet by taking on $50 billion in debt.
The bidding war could come down to what shareholders think the Discovery cable business is worth. Paramount has argued that the linear networks have zero equity value, citing the valuation that CNBC owner Versant Media Group has traded at since it made its stock market debut last month. Versant is seen as a comparable company for Discovery.