Potential Shift in Warner Bros. Discovery’s Deal with Netflix

Inside Paramount Skydance, there’s a growing sentiment that Warner Bros. Discovery (WBD) might soon terminate its agreement with Netflix, potentially reigniting a bidding war that has been ongoing for months, sources indicate.

If WBD decides to restart the bidding process, it likely won’t have much to do with Paramount’s recent offer, which largely maintained its all-cash bid of $78 billion. Instead, it appears to hinge on covering exit penalties from Netflix, rather than any concerns about valuation or regulatory issues.

As previously reported, WBD, which oversees Warner Bros., HBO Max, and various cable networks like CNN and Discovery, is feeling significant pressure to seriously consider a compelling proposal from Paramount Skydance.

Investors in WBD are increasingly skeptical that Netflix’s nearly finalized $72 billion acquisition of studios and streaming services can overcome substantial regulatory hurdles, raising doubts about the offer’s valuation.

One insider connected to the Paramount Skydance bid expressed, “Eventually, we’re buying this company. The figures just don’t make sense, and I can’t see this passing antitrust scrutiny.”

On another note, a Republican operative familiar with the Trump administration’s perspective on the Netflix deal mentioned, “Negotiations with the executive branch haven’t progressed at all.”

Officials at Paramount Skydance, managed by David Ellison and supported by his father, Larry Ellison, have stated they haven’t heard from WBD regarding a new bidding process. Meanwhile, WBD has opted not to comment on the situation.

Some speculate that WBD might be leaking information about the potential new bidding process as a self-protective measure against possible litigation while considering returning to Netflix’s original offer. Paramount has already accused WBD of neglecting a superior offer due to CEO David Zaslav’s friendship with Netflix’s Ted Sarandos.

This strategy, however, collides with the complex regulatory landscape Netflix is navigating. The Justice Department’s antitrust examination could extend six months or even longer, particularly after the resignation of the agency’s director amid internal White House pressure.

Back in December, WBD revealed that Netflix had accepted a deal to acquire its streaming and studio sectors, which outperformed Paramount’s bid to buy the entire enterprise based on claims of being the superior entity. In response, Paramount issued a hostile offer, urging investors to choose either to support the deal or cast their votes accordingly.

Although on the surface, it seems investors favor Netflix and WBD, there’s an emerging shift in sentiment among shareholders, prompting WBD to consider restarting the process.

The proposed all-cash bid stands at $27.75 per share, factoring in financing from WBD’s anticipated sale of its cable segment, which surpasses Paramount’s offer of $30 per share. Yet, there’s growing apprehension that the spinoff won’t reach the promised $3 per share value.

The newly formed cable company is burdened with substantial debt, and analysts suggest that WBD’s resulting stock stubs may not exceed $1 per share, drawing from figures related to Comcast’s cable division spinoff. Conversely, if WBD can offload its debts to the companies Netflix is acquiring, it might enhance the valuation of cable properties like CNN, TNT, and Discovery, adjusting the share price upwards to approximately $23.

Adding further complexity, Netflix’s deal faces significant scrutiny from the Trump administration, which is concerned that the control of the top streaming services could grant Netflix excessive pricing power.