CNBC's Alex Sherman reports on how Netflix won over Warner Bros. Discovery Bros.

Netflix has emerged as the successful bidder for Warner Bros. Discovery's studio and streaming assets, surpassing offers from Paramount and Comcast. Warner Bros. Discovery valued Netflix's bid at $27.75 per share for the studio and streaming, plus an estimated $3 per share for its cable networks, making the total value $30.75 per share—slightly higher than Paramount's $30 all-cash offer for the entire company.

The deal is expected to face significant regulatory review due to antitrust concerns, as Netflix, the leading streaming platform, acquires the third-largest. Paramount may still attempt a hostile bid, arguing its offer would encounter fewer regulatory obstacles. The outcome of these developments remains uncertain and could impact the competitive landscape of the media industry.

Netflix wins Warner Bros. Discovery bidding war

Let's bring in CNBC media reporter Alex Sherman, who's been all over this for several days. Morning, Alex. Yeah. Good morning. I mean, this is the culmination of several months now of back and forth, really a process that was kicked off by Paramount soliciting several unsolicited bids to Warner Brothers Discovery that pushed this into a sales process and now ultimately ending with Warner Brothers Discovery selling to Netflix, not Paramount. So a sort of surprise conclusion, I would say, for this, at least from where things started off. There were three bidders, Paramount, Netflix, and Comcast that have been involved with this from the get-go and today we find out that Netflix has emerged as the winner. Yeah, obviously the antitrust risk is the biggie and that's what we've been talking about all morning long, Alex, but before we even get to that, does your reporting indicate anything about why they went with Netflix? Was it a superior bid? Were there pre-existing relationships and biases? What is happening behind the scenes where Netflix all of a sudden became the front runner and then the winner? Well from Warner Brothers Discovery's point of view, you can certainly make an argument that yes, this was the best bid, $27.75 per share for just the studio and streaming. So Paramount's bid was $30 all cash for the entire company. That includes the linear cable networks. So in Warner Brothers Discovery's mind, because this bid doesn't include what will be known as Discovery Global, which will trade separately, that's a company that includes CNN, TNT, TBS, all the linear cable networks that currently reside within Warner Brothers Discovery, that has a value as well. And Warner Brothers Discovery executives that I've spoken to value that around $3 a share. So you say $3 a share for that, plus $27.75 for the studio and streaming, that gets you to $30.75. That's higher than the $30 bid. Now of course there's regulatory issues, so Paramount will argue our deal will sail through and Netflix's will get, you know, that'll have to go through a year and a half, two years and there's therefore some value attached to that. But if Warner Brothers Discovery does in fact believe that Netflix can get a deal done with limited pushback, then sure, you can make the argument, which apparently they did, that the Netflix bid is in fact better than the Paramount bid. Seeing some equity guys this morning, Alex, sort of step aside, Huber Research takes off their overweight. Netflix has been very successful for 15 years, developing its own content, licensing content, staying away from sizable deals. We don't understand why they're changing that now. You got any ideas? Yeah, it's a really offensive move for Netflix. I mean, think about this. You've got Paramount trying to buy Warner Brothers Discovery to become a better competitor to Netflix. You also have Comcast on the side, which also clearly wants HBO Max and the Warner Brothers Studio. Well, if you're Netflix and you're the biggest guy in town, how do you maintain your competitive advantage? Well, if you buy Warner Brothers Discovery, not only do you get that content and you get sort of a new theatrical apparatus that you've never had before to grow the business, but you also cripple Paramount and NBCUniversal, which probably can't come together for regulatory reasons because CBS and NBC, the two broadcast networks, would have to come together and that probably won't pass regulatory muster. So it's a very offensive move for Netflix, even though they've never done any sort of M&A of significance. That, I think, is the rationale. But when you get into offensive moves, then you wonder, is it anti-competitive ultimately, right? If they're just trying to take out a big competitor and whether the antitrust regulators, which already there are indications, will not like this. I mean, Elizabeth Warren now, so it seems like it's coming from both sides of the political aisle. We just talked to a cinema director who doesn't like the deal. I mean, there are plenty of people lining up to complain. You've got the number one streamer buying the number three streamer and Netflix buying HBO Max. So is that going to cause some consternation in this industry and its lobbyists? Absolutely. I do think that there's a very unknown question about how much regulatory pushback this will draw. But think about this from Netflix's perspective. Let's say this deal goes a year, two years, and then it dies. Well, Netflix will owe Warner Brothers Discovery about five point eight billion dollars in reverse termination fee. But they would have also kept Warner from Paramount and NBC Universal for two years. And frankly, Warner probably would degrade over those two years as well. So you've got to think about this from Netflix's perspective. Is that really the worst outcome? Five billion dollars in change to keep this asset away from two competitors for two years? And by the way, it would be even more than that, because they would then have to come up with their own deal after that, which would then need regulatory approval. So it may be three years or more. So in that sense, even this is an offensive move by Netflix, where I'm not even sure the worst case scenario of this deal being blocked by regulators is all that bad. Yeah. There's a little bit of heads. I win tales. You lose on this one. And of course, we're just beginning the process of months of beating this story over the head. A lot more to cover in the weeks and years here and abroad. Well, you're right on the international level. One last thing, Carl, on that end is that I do expect Paramount to come over the top with a hostile bid at some point. They bid 30 dollars all cash and they've already sent letters saying they didn't think that this process was a fair process to the Warner Brothers Discovery board. I would say it's more likely than not that they come over the top with one more bid at this stage, going directly to shareholders, arguing that their deal will have far less regulatory implications and in fact, may even be a sweetened deal over the 30 dollar bid that they lobbed in yesterday. Right. Would that work? I mean, that I don't have a crystal ball on, sorry. And whether or not you get some sort of unofficial blessing on that front, that'll make the story a lot more interesting. Alex, appreciate it. Talk soon. Alex Sherman on Netflix Warner.

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