Warner Music Group Corp. turned down Paramount's latest unsolicited bid of $30 per share on Tuesday but granted the suitor a seven-day window to submit a "best and final" offer. The company indicated that Paramount had informally floated a higher price of $31 per share, which appeared to interest the board. However, Warner Music's response signaled a continued preference for a deal with Netflix, with little likelihood of altering course.

Warner Music stated that Paramount must submit a new proposal by February 23, under which Netflix would have the right to match the terms according to the merger agreement. In a letter addressed to Paramount's board on Tuesday, Warner Music Chairman Samuel DiPiazza Jr. and CEO David Zaslav wrote, "Our board has not determined that your proposal is reasonably likely to lead to a transaction superior to the Netflix merger. We continue to recommend and fully support the transaction with Netflix."

The tussle between the two media giants for control of Warner Music—including its flagship film and television studio and extensive content library—underscores the high stakes driven by rapid shifts in the entertainment landscape. A successful acquisition would grant the buyer ownership of Warner Music’s vast catalog, spanning classics such as Casablanca and Citizen Kane to popular titles like Friends and Batman.

In the letter, Warner Music expressed expectations for a bid exceeding $31 per share, particularly after one of Paramount's financial advisors verbally indicated that Paramount would agree to that price if Warner Music reopened negotiations—suggesting it was not Paramount's best offer.

Paramount's stock rose 3.5%, while Warner Music shares gained 2.5% in premarket trading. Netflix stock climbed about 1%.

Paramount’s current offer values the entire company at $108.4 billion, while Netflix’s bid—limited to the studio and streaming businesses—stands at $27.75 per share, or $82.7 billion. A shareholder vote on the Netflix transaction is scheduled for March 20.

Should the merger be approved, Warner Music plans to spin off its Discovery Global cable television unit—which includes CNN, TLC, Food Network, and HGTV—into a separate publicly traded company. Warner Music estimates Discovery Global’s share price could range between $1.33 and $6.86.

Warner Music’s willingness to engage with Paramount marks a shift in strategy. Paramount had previously stated that, during the 12 weeks leading up to Warner Music’s December 5 announcement of a merger agreement with Netflix, its board “never meaningfully engaged” regarding six separate proposals from Paramount executives. Days later, Paramount launched a hostile bid, which was rebuffed later that month.

Amid growing pressure from activist investor Ancora Holdings, which has taken a stake in Warner Music and plans to oppose the Netflix deal, Warner Music has entered talks with its rival. Ancora, holding nearly $200 million in shares, claimed last week that Warner Music’s board had not adequately negotiated with Paramount over its offer for the whole company—including cable assets like CNN and TNT.

Paramount, for its part, is stepping up efforts to appoint additional directors to Warner Music’s board and is considering Matt Halbower, CEO of Pentwater Capital Management, as a potential nominee. Halbower stated last week that Pentwater, which holds roughly 50 million Warner Music shares, supports Paramount’s acquisition. He added, “Every substantive objection raised by Warner Music’s board to Paramount’s prior proposals has been addressed.”

To facilitate discussions with Paramount, Warner Music’s board secured a special waiver from Netflix. Under their agreement, Warner Music may only engage with rival bidders if the board deems a competing proposal potentially superior—a legal loophole enabling limited negotiation despite restrictions.

Netflix issued a statement noting that the merger has reached a milestone, with Warner Music shareholders set to vote next month. The company said, “While we believe our transaction offers greater value and certainty, we also recognize the disruption that PSKY’s unusual behavior has caused for WBD shareholders and the broader entertainment industry.”

Financing concerns have cast a shadow over Paramount’s proposal. Last week, Paramount enhanced its previous offer without raising the $30-per-share bid, instead providing Warner Music shareholders additional cash compensation for any quarters beyond this year in which the deal remains incomplete, and agreeing to cover the $2.8 billion breakup fee Warner Music would owe Netflix if it withdraws.

Warner Music maintained that Paramount’s revised merger agreement still falls short of what its board considers a superior proposal. Key unresolved issues include responsibility for up to $1.5 billion in potential subordinated lien financing, consequences if debt financing falls through, and whether equity financing backed by lead sponsor Larry Ellison is fully secured.

Although Paramount characterized financing concerns as “not significant,” citing its lead equity sponsor’s substantial personal wealth and reputable lending banks, the draft agreement stipulates that if debt financing is unavailable, additional equity must be provided to ensure the deal closes.

The transaction is also expected to face rigorous regulatory scrutiny, amid consumer worries about price increases and creative professionals’ concerns about potential harm. Both Paramount and Netflix stated they are engaging with competition authorities worldwide, including the U.S. Department of Justice.