The plans that led to Netflix clinching a $72 billion agreement with Warner Bros Discovery began to take shape around Thanksgiving. With a looming deadline, Warner Bros had instructed bidders, including Paramount Skydance and Comcast, to submit their latest proposals by the Monday following the holiday. This directive set the stage for a high-stakes bidding war.
While most Americans were engrossed in Thanksgiving festivities, Netflix executives and advisers were hard at work finalizing a binding offer. They secured a $59 billion bridge loan from banks, one of the largest of its kind, providing the necessary leverage to make a mostly cash-and-stock bid. This strategic move allowed Netflix to outmaneuver competitors like Comcast and David Ellison’s Paramount, according to insiders familiar with the negotiations.
The Bidding Process and Strategic Moves
The $72 billion deal, announced on Friday, is poised to create significant shifts in the entertainment industry, pending regulatory approval and potential challenges from Paramount. This account of Netflix’s unexpected victory in the year’s largest M&A auction is based on interviews with several individuals involved in the negotiations, who requested anonymity due to the confidentiality of the details.
The sales process began with unsolicited bids from Paramount Skydance, a newly formed entity after a merger orchestrated by Ellison, now the CEO and controlling shareholder, with backing from Oracle billionaire Larry Ellison. Paramount’s early entry gave it an initial advantage, but the post-Thanksgiving deadline for second-round bids allowed Netflix to catch up and submit the necessary documentation, insiders revealed.
When the binding bids were reviewed that Monday, Netflix’s offer stood out. Concerns about Paramount’s financing, which included backing from Apollo Global Management and several Middle Eastern funds, lingered. Warner Bros executives were wary of the certainty of this financing, despite assurances from the Ellisons.
Inside the Negotiations: Codenames and Strategies
In the lead-up to the deal’s conclusion, Warner Bros advisers established “war rooms” in various midtown Manhattan hotels. The core team operated from the Loews Regency, a hub for influential figures. Internally, the project was dubbed Project Sterling, with Warner Bros referred to as Wonder, Netflix as Noble, and Paramount as Prince.
Netflix’s chief financial officer, Spencer Neumann, spearheaded the negotiations, supported by corporate development head Devorah Bertucci. Key figures included chief legal officer David Hyman and Spencer Wang, vice president of finance, investor relations, and corporate development. All reported to co-CEOs Ted Sarandos and Greg Peters.
Reflecting its tech roots, Netflix conducted much of the deal-making over video calls and phone rather than in person. Virtual war rooms facilitated discussions, with participants using virtual hand-raising and chat features to maintain efficiency. Google Docs enabled real-time document collaboration.
The Final Countdown and Paramount’s Challenge
As negotiations intensified, Warner Bros advisers engaged in continuous dialogue with bidders, refining contract language and terms. Comcast proposed merging its NBCUniversal division with Warner Bros, while Paramount attempted to enhance its offer by increasing its break-up fee to $5 billion.
Ultimately, Warner Bros found Netflix’s offer superior, particularly due to its flexibility on key terms. On Wednesday, Paramount sent a strongly worded letter to the Warner Bros board, alleging the sales process was “tainted” and highlighting perceived regulatory risks in Netflix’s proposal, signaling Paramount’s waning chances.
Netflix learned of its victory on Thursday evening, sparking celebration among executives and advisers on a video call. By 10:25 p.m., Bloomberg reported that a deal was imminent. Sarandos acknowledged the surprise acquisition on a conference call with investors, stating, “I know some of you are surprised that we’re making this acquisition, and I certainly understand why.”
Looking Ahead: Challenges and Opportunities
Regardless of whether Paramount mounts another challenge, Netflix faces significant work ahead. The company has agreed to a $5.8 billion break-up fee to Warner Bros if the deal fails due to regulatory issues. This acquisition marks Netflix’s largest to date, presenting both challenges and opportunities.
“It’s going to be a lot of hard work,” Peters remarked during the conference call. “We’re not experts at doing large-scale M&A, but we’ve done a lot of things historically that we didn’t know how to do.”
The move represents a bold step for Netflix, traditionally known for building rather than buying. As the company navigates this new terrain, industry observers will be watching closely to see how it integrates Warner Bros’ vast assets and navigates potential regulatory hurdles.
With assistance from Christopher Palmeri and Lucas Shaw.
