Warner Bros.: Endorsement of the Netflix Bid Is Unsurprising Amid Companies’ Posturing
Materials released could be persuasive to some shareholders, as they ultimately must decide which offer they believe is better.
Warner Bros. Discovery WBD urged shareholders to reject Paramount Skydance’s PSKY offer to buy their shares for $30 apiece and instead affirm the board’s decision to merge only its streaming and studios business with Netflix NFLX. Netflix and Warner assert that the Netflix bid is superior, while Paramount claims the opposite.
Why it matters: The official stance aligns with what we expected, as Warner’s board already chose Netflix’s bid over Paramount’s. Materials released could be persuasive to some shareholders, as they ultimately must decide which offer they believe is better.
- Neither offer is clearly superior. We believe financial terms are very similar (Netflix’s bid is for about $27.75 and doesn’t include TV networks), so the odds of the deal getting completed—considering both regulatory approvals and firmness of financing—should determine shareholders’ preferences.
- Unsurprisingly, each bidder argues why it is more likely to see the deal to fruition. Materials released by Warner and Netflix may sway some shareholders, but we expect Paramount to further plead its case, and it may also increase its bid to negate any perception of parity in the financials.
The bottom line: We maintain our fair value estimates of $28 per share for Warner, $20 for Paramount, and $77 for Netflix. Dec. 17’s news does not change our view that Warner is likely to be acquired, Paramount is more likely to win than Netflix, and the price may be more than $30 per share.
- We don’t find Warner and Netflix’s position that Paramount’s financing is shaky to be persuasive, and Paramount has firmly refuted that claim. Both sides have some regulatory hurdles to overcome. We believe both can gain approval, but shareholder perception can inform choices.
- President Donald Trump has recently criticized the Ellison family, which runs Paramount, but he has also said he finds the Netflix merger problematic. The Ellisons have shown they can get the blessing of this administration for a major deal, and our view is that they’d face less federal pushback.
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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