WBD and Paramount’s regulatory path may be easier than partnering with Netflix

the next day paramount skydance emerged as the winner to take over the same media giant. warner bros discoverythere are growing questions about the future direction of corporate regulation.

The WBD board said Thursday that Paramount’s revised $31 per share offer is superior to Paramount’s existing offer. Netflixprompting the streamer to announce that it was pulling out of the deal altogether and paving the way for Paramount.

Paramount’s offer (up from $30 per share) is the latest in a series of moves by the company since launching a hostile takeover bid to acquire WBD late last year. The company initially lost a bidding war to Netflix, which offered $27.75 per share.

Paramount’s latest bid also includes a $7 billion penalty if the deal does not receive regulatory approval. And Friday’s filing says WBD has already paid Netflix the $2.8 billion breakup fee it would owe if the deal falls through.

But media industry experts said the Paramount partnership is more likely to pass government scrutiny than it was with Netflix.

Netflix co-CEOs Ted Sarandos and Greg Peters said Thursday that matching Paramount’s offer is “no longer economically attractive.”

Netflix executives said they were “very confident” the partnership would be approved, but the merger would combine the two major streaming services, Netflix and Paramount+, potentially raising prices for consumers and reducing competition.

In early December, President Trump said the Netflix-WBD deal “could be problematic” because of the increased market share Netflix would gain, and said he would be involved. He walked back those comments earlier this month, saying the deal would be made at the Justice Department’s sole discretion.

And while the size of Netflix and WBD’s combined entity has been one of the company’s biggest antitrust hurdles, that issue could still be raised for Paramount as well.

Paramount and WBD both have vast portfolios of television networks, with Paramount+ reaching 78.9 million subscribers and HBO Max reaching 131.6 million by the end of 2025, according to the latest earnings reports.

Paramount executives argued that one of the advantages of their proposal is that contracts with media companies would result in less government oversight. Father of Paramount Skydance CEO David Ellison oracle Co-founder Larry Ellison is known for his close ties to President Donald Trump.

Trump’s son-in-law, Jared Kushner, supports the deal with Paramount, according to a filing with the Securities and Exchange Commission.

Still, Paramount’s proposed deal was criticized for potentially being funded by Saudi Arabia’s sovereign wealth fund. Abu Dhabi, United Arab Emirates. And Qatar. The company previously said the companies had agreed to give up all governance rights, including board representation.

California Attorney General Rob Bonta (D) said Thursday night that the merger was “not a done deal” and warned that the California Department of Justice, which is conducting a public investigation into the merger, would vigorously review it.

Massachusetts Democratic Sen. Elizabeth Warren also said in a statement that the Paramount-WBD merger is “an antitrust disaster that threatens to drive up prices and reduce choice for American families.”

Raymond James analysts said they believe a Paramount-WBD partnership carries far less regulatory approval risk than a partnership with Netflix.

Analysts said in a note Friday that Paramount’s future regulatory path is “meaningfully easier” than Netflix’s, but it’s not a “rosy victory.”

“Of course, this deal has new challenges in terms of news, cable networks, international linear networks, etc., but we still feel the WBD/PSKY deal is more satisfying all-in,” the analysts wrote. “And we believe PSKY’s political position with respect to the current U.S. administration is much stronger than Netflix, especially following the reaction to the WBD/NFLX agreement.”

Analysts noted that questions remained about how the competitive market for both companies would be defined by the Justice Department, and speculated that Netflix likely decided not to respond to Paramount’s superior offer because it would “likely result in a brutal regulatory review.”

A Friday note from Morningstar analysts echoed those thoughts. Analysts said the move was the right move for both Netflix and Paramount, as they believe Netflix is ​​unnecessarily overpaying for WBD streaming and studios.

It’s worth noting that Paramount was looking to acquire the entirety of WBD, including pay-TV networks like CNN, TBS, and TNT, while Netflix only wanted the company’s studios and streaming assets.

“In our view, this is the best outcome for Warner shareholders. Given the high likelihood of expedited regulatory approval and the uncertainty surrounding the value and risk of the network business that shareholders would have owned, the best offer would have been $30 in cash,” the analysts wrote.

Analysts added that Paramount does not expect to face any regulatory issues during the approval process.

Joseph Kalmenowitz, assistant professor of finance at the University of Rochester’s Simon Business School, said the timing of Paramount’s bid was likely strategic.

“David Ellison not only outmaneuvered the Hollywood board, he timed the regulatory cycle perfectly,” Kalmenowitz said. “The populist big-is-bad philosophy is gone and the deal-friendly establishment is back.”

Still, Palen Kunajian, a partner at advisory firm Eisner Amper, said Paramount’s regulatory future remains uncertain and the deal is far from done. While concerns about the Netflix-WBD deal focused primarily on library content, he said the Paramount-WBD deal is much more of a “horizontal integration” effort between cable TV, sports, streaming and news.

“I think the biggest thing we’re going to focus on is centralizing our intellectual property under one roof,” Kunajian told CNBC. “What power does that give this new entity in terms of its ability to further charge?”

In addition to concerns about blockbuster series such as “Star Trek” and “Harry Potter,” Paramount will face political concerns from state and federal politicians as well as CNN and CBS working together under one roof, Kunajian said.

Ultimately, approval of the deal will depend on what concessions the two companies have to make to allay concerns about a potential media monopoly.

“Regulatory pressures, political pressures, etc. are definitely going to delay a deal and make things more complicated, and I think significant concessions will have to be made to get a deal done.

There are so many factors to this. This is much more complex than many other deals we’ve seen,” Kunajian said.

– CNBC’s Lillian Rizzo contributed to this report.