Morningstar

Paramount and Warner Bros.: Hostile Bid Is Probably Superior to Netflix’s, but Not Clearly

Both suitors are offering much more than we believe Warner is worth independently.

A general view of the Paramount headquarters.
AaronP/Bauer-Griffin via Getty
Securities in This Article
Netflix Inc
(NFLX)
Warner Bros. Discovery Inc Ordinary Shares - Class A
(WBD)
Paramount Skydance Corp Ordinary Shares - Class B
(PSKY)

Paramount Skydance PSKY has offered $30 per share in cash for all of Warner Bros. Discovery WBD, forcing the latter’s shareholders to weigh the bid against Netflix’s NFLX $27.75 cash and stock offer (nearly 85% cash) for the streaming and studios business, which constitutes most of Warner’s equity value.

Why it matters: We estimate the total value offered to shareholders is very similar. However, the certainty of $30 in cash plus the respective odds of merger approval could tip shareholders toward Paramount.

  • Netflix and Paramount have their own hurdles that make regulatory approval uncertain. However, we expect less international scrutiny of a Paramount merger. Also, US President Donald Trump said he will be heavily involved in the approval process, and that the Netflix deal “could be a problem.”
  • The US administration cannot unilaterally block this deal, although it could choose whether to fight its approval. Several Paramount bid financiers have cozy relationships with the president. Still, other parties can sue to block the merger, even if the federal government does not.

The bottom line: We now think Netflix has a less than 50% chance to acquire Warner’s streaming and studios business, and we maintain our $77 fair value estimate. We maintain our $20 per share fair value estimate for Paramount and believe it has at least a 50/50 chance of acquiring all of Warner.

  • We plan to raise our Warner fair value estimate to $28 from the standalone $20 on the better-than-75% odds that it is acquired by early 2027. Both current bids value the entire company at $30-$31 per share, representing a floor but not a ceiling.
  • If Netflix sweetens its offer, this could lead to another response from Paramount. We see a bidding war at these prices as a mistake, but Netflix appeared very enthusiastic about landing the Warner assets.

Long view: Both suitors are offering much more than we believe Warner is worth independently, but we think it’s more likely that Paramount’s shareholders would benefit from a combination than Netflix’s.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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