Netflix, facing a decline in stock value and investor doubts about its cash-and-stock proposal for Warner Bros. Discovery, is likely to proceed with an all-cash offer priced at $27.75 per share, according to On the Money.
It’s uncertain if this approach, which still needs the streaming service’s board approval, will satisfy investors who had reservations about the original mixed offer. So far, it seems Ted Sarandos’ Netflix isn’t inclined to increase its bid, which still hinges on the unpredictable worth of Warner’s cable assets, including CNN, TNT, and Discovery.
A full cash offer instead of an 85-15 cash-to-stock ratio might trigger a competitive bidding scenario for Warner Bros. Discovery. This could lead to counteroffers from independent film producer David Ellison and his father, whose company, Paramount Skydance, is operated by billionaire Larry Ellison, along with Redbird Capital, who recently made a hostile bid for the entire company.
Notably, the management team at PSKY (the ticker symbol for Paramount) has, for now, hesitated to boost its offer, which stands at $78 billion in cash ($30 per share). They’ve encouraged their shareholders to turn down Netflix’s proposal, arguing the streaming giant is overly reliant on stock in a volatile media market.
Netflix’s stock has significantly dropped—about $160 billion in the past six months—amplifying the bidding war over Warner Bros. Discovery.
Even though financing strategies were crafted to uphold the $27.75 price, a steep decline in Netflix’s stock has undermined the offer’s value, pushing the company’s financial backers to reassess their conditions, as reported by the Post.
Management believes that a flaw exists in Netflix’s bid related to the potential underperformance of WBD’s cable asset spin-out, which may not attract sufficient interest to yield a higher valuation.
Some investors, like Mario Gabelli from Gamco, have urged Netflix to “simplify” the offer, emphasizing that cash is preferable in this environment.
No comments have been issued by representatives from Netflix or WBD, and PSKY’s spokespersons were unavailable for immediate responses.
Recently, Paramount escalated its efforts concerning WBD and Netflix. They have filed a federal lawsuit asking for insights into the board’s discussions that led to the decision favoring Netflix’s bid over Paramount’s broader offer involving WBD’s streaming service and studios. Additionally, they have initiated a proxy contest to elect new directors to WBD’s board.
As pressure mounts, WBD is reportedly seeking an increase of $2 to $4 per share from PSKY to reignite the bidding process. Nonetheless, insiders suggest it may take time, as numerous uncertainties remain regarding Netflix’s evolving all-cash offer.
This situation is complicated further, as the deal is based on a valuation of $30.75 per share that relies heavily on the sale of WBD’s cable assets. Given the current market conditions, achieving that valuation seems questionable. Paramount has indicated to its dissenting shareholders that the profits from the WBD sale could be less than $1 per share, referencing the lackluster performance of Comcast’s cable divestiture, known as Versant.
