Netflix will pay $5.8B if Warner deal collapses
What's the story
Netflix's $72 billion acquisition of Warner Bros. Discovery (WBD) assets comes with a $5.8 billion breakup fee, one of the largest penalties in merger and acquisition history. The fee would be paid by Netflix if the deal collapses or fails to get regulatory approval, accounting for 8% of the deal's equity value. The acquisition includes WBD's film studio and streaming service HBO Max, but WBD will still go ahead with its planned spinout of TV networks like TNT and CNN.
Industry comparison
Breakup fee surpasses industry average
The $5.8 billion breakup fee is much higher than the industry average of 2.4% of total transaction value in 2024, as per a report by Houlihan Lokey. This suggests that Netflix executives are confident about getting approval from global antitrust regulators for the deal. The high penalty also reflects how competitive the bidding war was for control over Warner Bros., an iconic Hollywood studio.
Reverse penalty
Warner Bros. faces reverse breakup fee
If Warner Bros.' shareholders reject the deal, it would have to pay a $2.8 billion reverse breakup fee. In case the studio accepts a competing offer, the new buyer would be liable for this fee. This clause is part of the agreement and ensures that both parties are committed to seeing through the transaction process.