In early December, Netflix (NFLX 0.27%) agreed to acquire Warner Bros. Discovery (WBD 0.45%) in a cash-and-stock deal valued at $72 billion. The move kicked off a high-profile battle that has raged ever since, and the ensuing drama has the makings of a made-for-streaming movie. Since then, Paramount Skydance (PSKY 0.35%) has been doing its level best to scuttle the deal, eager to pick up Warner Bros. for itself.
Reports emerged today that Netflix is considering amending its bid, making an all-cash offer for Warner Bros.' studio and streaming assets. The remaining assets of the company, namely the legacy cable and broadcast television stations -- including CNN, TNT Sports (in the U.S.), Discovery, and several broadcast channels in Europe -- would be spun off before the close of the deal, into a new entity dubbed Discovery Global. The value of these Discovery Global shares may ultimately tip the balance in Netflix's favor (more on that in a moment).
Image source: Netflix.
Under the terms of the original agreement, shareholders would have received $23.25 in cash per share, Netflix shares worth roughly $4.47 (or $27.72 in all), and shares of the Discovery Global spin-off company. The boards of directors of Warner Bros. and Netflix have both unanimously agreed to the deal.
Having lost out in the boardroom, Paramount CEO David Ellison mounted an increasingly hostile takeover bid, offering to buy stock directly from investors for $30 per share. He called Netflix's bid "inferior," alleging that the Discovery Global ownership represented "zero equity value," though previous estimates put the value at about $4 per share. Ellison also plans a proxy fight, announcing plans to nominate his own slate of directors to Warner Bros.' board, in another bid to disrupt Netflix's buyout bid.
NASDAQ: WBD
Key Data Points
An apples-to-apples comparison
However, recent developments suggest the cable channels may be worth far more than Ellison lets on. Earlier this month, Comcast (CMCSA 0.95%) completed the spin-off of Versant Media Group (VSNT 0.67%), which included several cable staples, including MSNBC, CNBC, USA Network, and Oxygen, among others.
Wolfe analyst Peter Supino initiated coverage on Versant with a buy rating and a price target of $52. That represents potential upside of 58% compared to the stock's closing price on Wednesday. The analyst cites a solid free cash flow margin and its "blue chip" brands as evidence.
The parallel to the proposed Discovery Global spin-off is uncanny and suggests that previous estimates of a value of $4 per share may be conservative. This development could also help sway Warner Bros. shareholders who may have been on the fence about accepting Netflix's offer.
That, combined with a potential all-cash offer from Netflix, may be enough to push the deal over the finish line.
