Netflix's (NFLX +0.54%) $83 billion buyout of most of Warner Bros. Discovery (WBD 0.77%) is far from a done deal.
Just as the ink had dried on the merger announced on Friday, Paramount Skydance (PSKY +0.78%) issued its own hostile takeover bid for all of Warner Bros. Discovery, valued at $108 billion including debt. With the move, it's going directly to shareholders with the offer after WBD's board agreed to sell to Netflix.
Let's review some of the key facts investors should be aware of before discussing what it means for these stocks.
- Netflix is paying $27.75/share to Warner Bros. Discovery for its film studios, including Warner Bros., as well as HBO and HBO Max.
- Netflix's accepted offer values the WBD equity at $72 billion, or about $82.7 billion, including debt.
- The remaining components of WBD, known as the Global Networks, include the Discovery+ streaming service and cable channels like CNN, TNT, and Food Network, which would be spun off into a separate company.
- Netflix will pay $23.25 in cash, funded with new debt and $4.50 in Netflix stock for each share of WBD.
- If Netflix is forced to terminate the deal, for example, because it's blocked by regulators, Netflix would pay WBD a termination fee of $5.8 billion. If WBD backs out, it would have to pay Netflix $2.8 billion.
- Paramount is offering $30 per share for the whole company, which equals an enterprise value of $108.4 billion for the company, in an all-cash tender offer.
- WBD's board has not modified its recommendation after receiving the tender offer, but it said it would inform stockholders of the board's recommendation within 10 days.
Image source: Getty Images.
What it means for the stocks
Paramount was seen as the big loser when the Netflix-WBD deal was announced. After all, Paramount was the first company to express interest in WBD, and it seems like the most natural fit as both companies represent legacy Hollywood studios and a network of cable channels.
Paramount CEO David Ellison said, "Our public offer, which is on the same terms we provided to the Warner Bros. Discovery Board of Directors, provides superior value, and a more certain and quicker path to completion.
Making the private offer public is a smart move for Paramount. It costs the company nothing to do so, and there's a good argument that shareholders might prefer it. After all, it is a higher offer, and it doesn't leave WBD shareholders with "a sub-scale and highly leveraged stub in Global Networks," as Paramount argued. Indeed, it does seem that the spinoff company would struggle as it's made up of mostly declining businesses, and WBD stock badly lagged the market, due in part to its large debt burden, before the company indicated it was interested in a sale.
For Netflix, the offer only complicates things. Even if Warner Bros. Discovery rebuffs the offer, the hostile takeover could make it harder for its buyout to pass regulatory muster. A merger between Paramount and WBD is less likely to be blocked as neither company has the global market power that Netflix has. Additionally, Hollywood's rank-and-file already seems to hate the Netflix-WBD deal, fearful that it will lead to further job cuts and a collapse of the theatrical business.
If WBD shareholders accept Paramount's offer, Netflix could come back with a higher bid, meaning it could also just have to pay more.
NASDAQ: PSKY
Key Data Points
Are there any winners?
At this point, the only clear winner is WBD as its stock price has moved higher every day since the Netflix deal was announced.
However, if regulators end up blocking the Netflix-WBD deal, that would also leave WBD shareholders burned.
Given that risk, it wouldn't be surprising to see shareholders overrule management, take the $30/share offer, and call it a day.
