Paramount’s Bid for Warner Bros. Discovery
Paramount Skydance seems to think it has an edge over Netflix in the competition to acquire Warner Bros. Discovery (WBD). This sentiment, shared by some insiders, suggests that their issue with Netflix is resolving itself, as reported by On the Money.
The leadership at Paramount, including David and Larry Ellison, reaffirmed their commitment to merging with WBD, pointing out what they consider to be WBD’s missed opportunities by rejecting their current offer of $30 per share, which totals about $78 billion.
This week, WBD expressed concerns about the financial structure of the Ellison deal, which entails $85 billion in debt. They insisted that Larry Ellison need to secure this debt in addition to guaranteeing $40 billion in equity, labeling it a “leveraged buyout.”
The PSKY team argues that for these criticisms to be valid, WBD would need to believe that major banks like Citigroup and Bank of America would abandon the deal after giving assurances to the contrary.
Looking more closely at the Netflix deal, it includes a cash offer of $27.75 per share, along with Netflix stock. They also plan to pay an additional $3 per share for some cable assets that WBD hasn’t yet acquired, like CNN, TNT, and Discovery.
WBD’s channels are under pressure from cord-cutting trends. PSKY has noted that a new company called Versant, a Comcast spinoff including CNBC and MS NOW, has seen its stock drop nearly 30% since launching.
RedBird Capital banker Gerry Cardinale is presenting a scenario to investors where WBD’s spin-off might trade alongside Versant, which carries less debt. The numbers suggest that WBD’s spin-off could be worth nothing.
In addition, Netflix is part-funding its offer with its own stock, which has lost over $150 billion in value amid ongoing troubles. Investors appear wary about CEO Ted Sarandos and co-founder Reed Hastings shifting the company’s long-standing business model, which previously avoided major acquisitions.
There are also antitrust considerations when linking Netflix, the leading streamer, with HBO Max, currently ranked third. Plus, the established relationship between Larry Ellison and President Trump could influence the deal’s regulatory outlook.
While PSKY’s cash bid has fluctuated this week without gaining momentum, it seems to be attracting some interest. Notably, investor Mario Gabelli stated, “Cash is king…$30 in cash is a better deal,” in an interview.
On the other hand, David Zaslav at WBD has a solid reputation as a CEO. Over the past year, he has revitalized Warner Bros. Studios, reduced debt, and enhanced HBO Max’s competitiveness. His management led to a bidding war last September when David Ellison made an initial offer of $19 in cash and stock.
Perhaps Zaslav expects more from the Ellisons and Cardinale, which is why he is engaging with Netflix. Still, he might have to settle for the situation as it stands.
