On Tuesday, Netflix CEO Ted Sarandos faced a dual challenge: bolstering his “winning bid” for the Warner Bros. Discovery acquisition and reassuring shareholders about the months of work leading up to it. This comes after Netflix lost nearly $170 billion in market value amid ongoing turmoil, according to reports.
The company’s latest earnings report surpassed expectations, which was partially intended to remind shareholders that Netflix remains a dominant player, even as it prepares to invest about $83 billion in cash to acquire Warner Studios and HBO Max.
In a significant move, Sarandos announced that Netflix has placed an all-cash bid of $83 billion for WBD’s streaming service, positioning itself strongly in the competition against rival Paramount Skydance.
However, the response to Netflix’s earnings report was mixed, with the stock actually declining after the news broke. The company now faces the daunting task of recovering from massive losses during a prolonged bidding war, where many investors expressed doubts about Netflix’s valuations and were concerned it was overextending itself with unnecessary acquisitions.
There’s a possibility that Netflix’s stock could keep dropping. While its cash-only offer was positively received by WBD and its leadership, including CEO David Zaslav, there are underlying concerns for Netflix’s own shareholders. They might find the hefty price tag, due to the scale of this acquisition, daunting as the company seeks to manage one of the largest media deals in recent history.
The bid proposal includes an 85% cash and 15% stock division, already burdened with $60 billion in debt—combined with $50 billion in new bonds and loans, plus an additional $10 billion from WBD. It appears this new offer could lead to further debt accumulation.
Success in securing WBD will largely hinge on selling off cable assets for at least $3 a share. This spinoff entails roughly $20 billion in debt. While Netflix anticipates that cash flow improvements from the deal may not significantly affect cable asset leverage, there’s a sense it might need to revisit the negotiation to assure shareholders of a competitive offer compared to PSKY’s $30-a-share cash bid.
There’s uncertainty about how PSKY—which is led by film producer David Ellison and his father, billionaire Oracle co-founder Larry Ellison—will respond to Netflix’s actions.
Zaslav has been openly supportive of Netflix’s proposal, and may even believe their deal is superior for overall company health. However, some at Paramount speculate that he might have a better deal lined up.
Interestingly, Szas appeared to indicate that WBD might kick off a new bidding process if Paramount increased its offer by around $3 per share. Additionally, he shared plans to move the shareholder vote on Netflix’s proposal up from spring to late February or early March.
According to insights from a WBD insider, “This puts pressure on PSKY to either raise their offer or potentially walk away since they can’t afford to sit idle in light of this change.”
As of now, representatives for both Netflix and PSKY have yet to respond to inquiries regarding this ongoing situation.
