Warner Bros(WBD.US) bidding war heats up! Paramount(PSKY.US) raises the bid to target $31 per share, Netflix(NFLX.US) faces an "overtime" showdown

Warner Bros. Discovery (WBD.US) announced on Tuesday that Paramount’s new offer of $31 per share, which is potentially more favorable than Netflix’s (NFLX.US) current agreement, has sparked a new round of potential bidding war for the well-known Hollywood studio.

According to a statement on Tuesday, Warner Bros. did not withdraw its recommendation for investors to support Netflix’s $27.75 per share acquisition of its production and HBO businesses. Instead, it indicated that Paramount’s latest terms have reached the threshold for further negotiations.

Paramount’s latest move suggests that, under the leadership of David Ellison, the company will not abandon its bid for Warner Bros. in the near term. This increased offer will test whether Netflix is willing to pay a higher price for Warner Bros.’ studios and its library, including DC Comics series and “Game of Thrones.”

Warner Bros. stated, “The board has not yet made a decision on whether the revised Paramount proposal is superior to the merger with Netflix.” The company plans to engage in more negotiations with Paramount and said that if the board supports this increased offer, Netflix will have four business days to respond.

This decision by the board comes after Paramount was granted a seven-day period to resume negotiations with Warner Bros. Since September, Paramount has been seeking to acquire HBO and CNN’s parent company, repeatedly increasing its bids and modifying terms requested by Warner Bros.’ board.

Sources familiar with the matter said that the two companies negotiated late into the night last night, only ending the call when the midnight window closed. Several unresolved issues remain, and parties can now begin to address them.

Paramount’s revised proposal increases its previous $30 per share bid by $1, with an estimated valuation of approximately $108 billion, including debt. Netflix’s proposal, based on this valuation, is about $82.7 billion. However, Warner Bros. believes that divesting its cable channels will bring additional value to its investors.

Paramount’s latest offer includes a “ticking fee” — a delay compensation fee — of $0.25 per share for each quarter the deal remains unapproved after September 30. Additionally, if regulators reject the deal, Paramount will pay Warner Bros. $7 billion.

Paramount also agreed that if any of its lenders doubts its ability to finance the deal and refuses to provide funding, it will contribute more equity. The company also stated it would not abandon the deal due to Warner Bros.’ cable network business deterioration.

Following the announcement, Warner Bros.’ stock fell less than 1% in after-hours trading, possibly due to some investors expecting a higher bid. Both Paramount and Netflix stocks rose about 1%.

CEO Ellison launched a tender offer to acquire Warner Bros. shares in December, just days after Netflix announced its agreement. This move came after 43-year-old Ellison acquired CBS and MTV parent Paramount for $8 billion last August.

Traditional media revenues from cable TV and theaters have declined, putting pressure on studios like Paramount and Warner Bros. to merge. After investing heavily in streaming services, these studios have been reducing production and layoffs to turn these new businesses profitable.

In October, Warner Bros. stated that, after receiving interest from multiple parties, it was considering all options. Bidders interested in acquiring all or part of Warner Bros. include Paramount, Netflix, and Comcast.

The bidding war has become intense, with Paramount accusing Warner Bros. of conducting an auction biased toward Netflix. Some Warner Bros. shareholders, including Pentwater Capital Management and Ancora Holdings, have publicly called for the company to restart negotiations with Paramount.