Comcast’s attempt to spin off its cable assets hasn’t gone as planned, raising doubts about Netflix’s supposedly winning bid for Warner Bros. Discovery (WBD), according to insights from On the Money.
The rising stock value of Versant, which includes notable channels like CNBC, MS NOW (formerly MSNBC), and E!, supports the argument made by Paramount Skydance. They are urging shareholders to reconsider WBD’s choice of Netflix and to favor their $78 billion all-cash bid for the company instead.
A significant part of the agreement with Netflix hinges on the sale of WBD’s cable properties—like CNN and TNT—anchored in the hope that the overall valuation of WBD’s studios and streaming services will reach $31.75 per share. Meanwhile, Netflix’s strategy involves compensating WBD with $27.75 in cash and stock solely for WBD’s cable and streaming assets, potentially allowing investors an extra $3 from the cable spinoff.
However, the weaker-than-expected launch of Comcast’s spinoffs has put that valuation into question. Versant’s stock plummeted by 22% over its initial two days on the Nasdaq, which is causing concern among some investors about how this might influence Netflix’s bid.
“This aligns with what we’ve been advocating, and we believe investors see it too,” remarked a banker associated with Paramount Skydance.
Mario Gabelli, an influential value investor holding WBD stock, pointed out that Versant’s stock drop highlights the stronger appeal of Paramount’s all-cash proposal. He suggested that even if Versant’s stock recovers, it won’t compare favorably to Paramount’s offer due to the complexities tied to Netflix’s bid, which is reliant on the cable spinoff and Netflix’s stock performance.
“Netflix has the challenge of securing more funding to streamline its offer,” Gabelli remarked. “Cash is king, as the saying goes.”
Neither Paramount nor WBD shared comments on the matter.
Versant’s deal stands as a pivotal point in the tussle for Warner Bros. Discovery, the media giant that oversees entities like Warner Studios and HBO Max, alongside its cable assets.
There are speculations that Versant’s unimpressive performance might hinder WBD’s cable spinoff, projecting it could trade for just over $1 a share. This is attributed to dwindling viewership and significant debt, which exceed what is displayed on Versant’s balance sheet.
Value assessments of WBD’s cable spinoff are coming to light as WBD’s board is poised to respond to Paramount’s latest cash offer on Wednesday.
After a defeat by Netflix in the bidding war, Paramount, led by filmmaker David Ellison and backed by Redbird Capital, has adopted a hostile takeover strategy. They assert that their all-cash offer is far more advantageous compared to Netflix’s, which includes stock that has lost significant value—over $100 billion—during WBD’s pursuit.
Now, the uncertainties surrounding WBD’s cable spinoff further complicate Netflix’s standing. Recently, Paramount Skydance revealed that billionaire Larry Ellison, the father of CEO David Ellison and a supporter of Paramount, would personally guarantee the $78 billion bid while fulfilling other conditions, such as compensating WBD for withdrawing from Netflix’s offer.
People close to Paramount anticipate the company will be turned down once again on Wednesday when the deadline to answer the latest proposal arrives.
For WBD shareholders, there are clear benefits. CEO David Zaslav has reportedly boosted the company’s stock by nearly 133% amid the bidding war, hinting at a desire for an increased buyout price of $34 per share, valuing the entire enterprise at upwards of $88 billion.
While aiming for higher stakes, Paramount Skydance seems to be adopting a long-term strategy, especially as investors have their eyes on the Versant cable spinoff. As noted by the Post, Paramount is considering a drastic approach, referred to as “DefCon1,” which might lead to a lawsuit against WBD for favoring Netflix in the bidding process, potentially due to Zaslav’s friendship with Netflix CEO Ted Sarandos.
