Paramount Threw a Wrench in Netflix's Bid to Acquire Warner Bros.

Key Points

• Netflix has agreed to acquire Warner Bros. Discovery’s streaming and studio production assets in a cash-and-stock deal worth up to $27.75 per share, excluding the spin-off of TV channel assets.
• Paramount Skydance is countering with a hostile all-cash $30-per-share offer to acquire WBD’s entire business, including both streaming and TV assets.
• Antitrust considerations and shareholder votes remain key hurdles, with the Paramount offer seen as more regulator-friendly due to reduced market dominance concerns.

The drama surrounding Warner Bros. Discovery NASDAQ: WBD continues to heat up. After the entertainment giant announced that Netflix NASDAQ: NFLX would acquire it, Paramount Skydance NASDAQ: PSKY threw a wrench into the situation. Let’s break down the latest developments in the streaming war saga and decipher what it means for WBD stock. 

Breaking Down the NFLX-WBD Deal Structure

Netflix has agreed to purchase WBD’s streaming and studio production assets in a cash-and-stock transaction. For each WBD share, the deal includes $23.25 in cash and $4.50 in Netflix stock. 

However, the stock portion’s value is subject to change based on Netflix’s 15-day volume-weighted average price (VWAP) before the transaction closes. The $4.50 value holds if NFLX trades between $97.91 and $119.67.

If it falls below or above this range, the share value received in NFLX stock will decrease or increase accordingly. For reference, here’s a detailed guide on how VWAP is calculated.

WBD also has TV channel assets, such as CNN and TNT Sports, which are not included in Netflix's acquisition.

Instead, WBD will spin off these assets into a new publicly traded company, called Discovery Global, and WBD shareholders will receive shares in this entity. The market will determine the value of this entity, just like any other stock, with some suggesting it could be between $1 and $5 per share. In summary, the per share value that WBD is getting through the Netflix deal is:

In total, WBD shareholders could receive:

• $23.25 in cash
• $4.50 in Netflix stock (variable)
• $1–$5 in Discovery Global shares

That pegs the estimated total value per WBD share at $28 to $33, depending on market conditions and Discovery Global's valuation.

Paramount Skydance Launches a $30 All-Cash Bid

While the NFLX deal is pending shareholder approval, Paramount Skydance has launched a hostile bid to acquire all of WBD for $30 per share, in cash. Paramount would buy the streaming, studio, and TV channel assets. 

Key advantages of the PSKY offer include:

• No variability in share value from stock-based payments
• No spin-off structure; shareholders get one clean payout
• Simplified regulatory pathway with a lower risk of antitrust concerns

Regulatory Hurdles Could Favor PSKY

Regardless of the type of merger any of these companies agree to, nothing is set in stone until antitrust regulators approve it. And right now, it seems more likely that regulators would approve a PSKY-WBD deal than an NFLX-WBD deal. Netflix has over 300 million subscribers, while WBD’s HBO Max has over 100 million. Combining these two would give Netflix well over 400 million subscribers, further extending the company’s lead as the most-used streaming service.

Meanwhile, PSKY’s Paramount+ has only around 79 million subscribers. Combining HBO Max and Paramount+ would leave PSKY with under 200 million subscribers, still far less than Netflix on its own. Promoting competition is the main goal of antitrust regulators. A PSKY-WBD deal would push back on Netflix’s dominance, while an NFLX-WBD deal would further cement it.

The WBD Saga Continues

The quest to acquire WBD is far from over. It is possible that Paramount’s latest move could lead to a continuation of a bidding war for WBD. If the two firms push their offers higher, WBD shareholders may see upward pressure on the stock in the short term. 

Paramount’s offer of $30 per share for WBD stock offers clarity and certainty, but it may undervalue WBD compared to the upper bound of $33 estimated from the NFLX deal—assuming favorable market conditions.

Ultimately, shareholder votes and regulatory approval will determine the winning bid. In the meantime, investors should keep a close eye on updates and remain alert to potential deal revisions.