410
17 days ago
Netflix is big winner in Warner takeover battle as CEO puts shareholders over ego
Summary
The winner in the battle for Warner Bros. Discovery was the loser.
In a mild surprise, Netflix dropped out of the bidding late Thursday after Warner Bros. deemed superior the recent offer from Paramount Skydance.
Wall Street is thrilled and relieved about Netflix’s financial discipline, with Netflix stock up 10% in after-hours trading to $93.39, after rising 2% in regular trading Thursday. The stock now has gained about 20% so far this week.
Barron’s argued in an article late last week that Wall Street would reward the losing bidder. “Netflix stock could get a nice bump if it’s topped by Paramount since Wall Street wishes it would give up its pursuit and focus on its dominant global streaming platform,” Barron’s wrote.
The view among most Netflix investors was that company was overpaying with its original $82 billion offer for most of Warner Bros. Wall Street punished Netflix stock, which was above $100 when the deal was originally announced on Dec. 5. Netflix will now receive a $2.8 billion breakup fee.
“We believe this is the best move for $NFLX shareholders and with the $2.8B termination fee for new content we believe NFLX stock can return to the ~$100/share level at which it was trading before its Dec. 5 bid for $WBD,’ tweeted Gary Black, the managing partner of the Future Fund.
The original Netflix deal was dubious on several fronts. It would have paid a high price—25 times projected 2026 ebitda (earnings before interest, taxes, depreciation and amortization) before synergies—for the Warner streaming and studio business when media valuations have collapsed with Disney valued at 10 times. It would have taken on $50 billion-plus of debt which could have crimped or eliminated stock repurchases for a few years.
Paramount now will prevail with its all-cash $31 a share offer for all of Warner Bros, a deal worth close to $80 billion plus the assumption of around $30 billion of Warner Bros. debt.
Paramount stock is up 5% to $11.77 in after-hours trading while Warner Bros. stock is down 1.5% to $28.37.
Paramount fans may view the deal as a win because the company didn’t have to pay $33 a share or more to win Warner Bros as some expected.
Warner Bros stock now trades at an 8% discount to the current deal value with Paramount hoping to close on the transaction in 2026. Look for takeover arbitrageurs to evaluate Warner Bros stock Friday given the fairly ample deal spread.
The betting markets lately have had Paramount as the slight favorite after it submitted its new offer, which topped its original offer of $30 a share.
With its greater financial resources. Netflix could easily have won. It probably could have won the day by boosting its bid by just $1 to $2 a share. But the company chose to walk away.
Here’s what Netflix said late Thursday: “The transaction we negotiated would have created shareholder value with a clear path to regulatory approval. However, we’ve always been disciplined, and at the price required to match Paramount Skydance’s latest offer, the deal is no longer financially attractive, so we are declining to match the Paramount Skydance bid.”
It’s stunning that Paramount was able to win the battle since its market value is just $12 billion against almost $400 billion for Netflix. It’s almost unprecedented for such a small company to outbid a so much larger one for such a large asset.
The Paramount victory is due to the willingness of Oracle chairman and billionaire Larry Ellison to backstop a big chunk of the deal and give his son David, the Paramount CEO, the prize he seeks. But Paramount will take on a lot of debt to get the deal done and that will put pressure on it to potentially slash costs at the combined company. Some have estimated that Paramount’s debt after the deal will be about seven times its annual earnings before interest, taxes, deprecation and amortization (Ebitda)—double what most companies view as prudent.
Netflix co-CEO Ted Sarandos is viewed as the most powerful man in Hollywood, and it’s notable that he was willing to put the interests of Netflix investors over ego in letting the Ellisons win Warner.
Write to Andrew Bary at andrew.bary@barrons.com
Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
Download the Mint app and read premium stories
In a mild surprise, Netflix dropped out of the bidding late Thursday after Warner Bros. deemed superior the recent offer from Paramount Skydance.
Wall Street is thrilled and relieved about Netflix’s financial discipline, with Netflix stock up 10% in after-hours trading to $93.39, after rising 2% in regular trading Thursday. The stock now has gained about 20% so far this week.
Barron’s argued in an article late last week that Wall Street would reward the losing bidder. “Netflix stock could get a nice bump if it’s topped by Paramount since Wall Street wishes it would give up its pursuit and focus on its dominant global streaming platform,” Barron’s wrote.
The view among most Netflix investors was that company was overpaying with its original $82 billion offer for most of Warner Bros. Wall Street punished Netflix stock, which was above $100 when the deal was originally announced on Dec. 5. Netflix will now receive a $2.8 billion breakup fee.
“We believe this is the best move for $NFLX shareholders and with the $2.8B termination fee for new content we believe NFLX stock can return to the ~$100/share level at which it was trading before its Dec. 5 bid for $WBD,’ tweeted Gary Black, the managing partner of the Future Fund.
The original Netflix deal was dubious on several fronts. It would have paid a high price—25 times projected 2026 ebitda (earnings before interest, taxes, depreciation and amortization) before synergies—for the Warner streaming and studio business when media valuations have collapsed with Disney valued at 10 times. It would have taken on $50 billion-plus of debt which could have crimped or eliminated stock repurchases for a few years.
Paramount now will prevail with its all-cash $31 a share offer for all of Warner Bros, a deal worth close to $80 billion plus the assumption of around $30 billion of Warner Bros. debt.
Paramount stock is up 5% to $11.77 in after-hours trading while Warner Bros. stock is down 1.5% to $28.37.
Paramount fans may view the deal as a win because the company didn’t have to pay $33 a share or more to win Warner Bros as some expected.
Warner Bros stock now trades at an 8% discount to the current deal value with Paramount hoping to close on the transaction in 2026. Look for takeover arbitrageurs to evaluate Warner Bros stock Friday given the fairly ample deal spread.
The betting markets lately have had Paramount as the slight favorite after it submitted its new offer, which topped its original offer of $30 a share.
With its greater financial resources. Netflix could easily have won. It probably could have won the day by boosting its bid by just $1 to $2 a share. But the company chose to walk away.
Here’s what Netflix said late Thursday: “The transaction we negotiated would have created shareholder value with a clear path to regulatory approval. However, we’ve always been disciplined, and at the price required to match Paramount Skydance’s latest offer, the deal is no longer financially attractive, so we are declining to match the Paramount Skydance bid.”
It’s stunning that Paramount was able to win the battle since its market value is just $12 billion against almost $400 billion for Netflix. It’s almost unprecedented for such a small company to outbid a so much larger one for such a large asset.
The Paramount victory is due to the willingness of Oracle chairman and billionaire Larry Ellison to backstop a big chunk of the deal and give his son David, the Paramount CEO, the prize he seeks. But Paramount will take on a lot of debt to get the deal done and that will put pressure on it to potentially slash costs at the combined company. Some have estimated that Paramount’s debt after the deal will be about seven times its annual earnings before interest, taxes, deprecation and amortization (Ebitda)—double what most companies view as prudent.
Netflix co-CEO Ted Sarandos is viewed as the most powerful man in Hollywood, and it’s notable that he was willing to put the interests of Netflix investors over ego in letting the Ellisons win Warner.
Write to Andrew Bary at andrew.bary@barrons.com
Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
Download the Mint app and read premium stories
AI Description
Netflix demonstrated financial discipline by withdrawing from the bidding for Warner Bros. Discovery, prioritizing shareholder interests over aggressive expansion. This decision was influenced by a superior offer from Paramount Skydance.