When the binding bids arrived that Monday, Netflix’s offer emerged as superior, the people said.
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One issue was that the Warner Bros camp had doubts about how Paramount would pay for the company, which owns sprawling Hollywood studios, the HBO network and a vast film and TV library.
Paramount’s offer included financing from Apollo Global Management and several Middle Eastern funds, and it had conveyed that its bid was fully backstopped by the Ellisons. Still, Warner Bros executives were privately concerned about the certainty of the financing, people familiar with the matter said.
Representatives for Netflix and Warner Bros declined to comment.
‘Noble’ vs ‘Prince’
In the weeks leading up to the finale, Warner Bros advisers set up war rooms at various hotels in midtown Manhattan. A core group holed up at the Loews Regency, which has long been a convening spot for the city’s movers and shakers.
Inside Warner Bros, the situation was known as Project Sterling. The company called itself by the code name Wonder. The team referred to Netflix as Noble, while Paramount was Prince and Comcast was Charm.
Netflix president and co-chief executive officer Ted Sarandos.
At Netflix, chief financial officer Spencer Neumann served as the point man while corporate development head Devorah Bertucci organised people day to day. Chief legal officer David Hyman and Spencer Wang, vice president of finance, investor relations and corporate development, also were key architects. All of them reported to co-CEOs Ted Sarandos and Greg Peters.
The contours of the deal were shaped in a way befitting of a tech company: mostly over video chat or phone rather than in person. Virtual war rooms were set up.
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While strategising or discussing diligence on Zoom, participants would raise virtual hands or make suggestions over chat rather than unmuting and slowing down the meeting. Google Docs were used to review and edit documents together in real time.
Talks heated up last week as Warner Bros advisers were in continuous dialogue with the bidders and negotiating contract language and value. Comcast said it would merge its NBCUniversal division with Warner Bros. Paramount offered to more than double its proposed break-up fee to $5 billion to sweeten its deal and outshine rivals.
In the end, Warner Bros determined Netflix had the best offer and the company was the most flexible on key terms. On Wednesday, Paramount lobbed an aggressively worded letter to the Warner Bros board, saying the sales process was “tainted”. It also identified what it saw as regulatory risks in the Netflix proposal, one sign that a winning outcome was slipping away for Paramount.
Netflix found out on Thursday evening New York time that it had won. Executives and advisers were assembled on a video call when they got the official word, sparking a moment of jubilation before everyone snapped into action. By 10.25pm, Bloomberg broke the news that a deal was imminent.
Even Sarandos made it sound like the ending was a twist on a conference call with investors. “I know some of you are surprised that we’re making this acquisition, and I certainly understand why,” he said. “Over the years, we have been known to be builders, not buyers.”
Regardless of whether Paramount reemerges to try and top the bid, Netflix will have work ahead of it. It has agreed to pay a $US5.8 billion break-up fee to Warner Bros if the transaction fails on regulatory grounds. The company also has to digest its largest acquisition ever.
“It’s going to be a lot of hard work,” Peters said on 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.”
– With assistance from Christopher Palmeri and Lucas Shaw.
