When Netflix Inc. announced its intention to acquire one of Hollywood’s oldest and most famous names, it sent shockwaves through the two industries its operations straddle.
Now a rival bid from Paramount has added to the story - more on that later.
Netflix of course is not just a media business with global reach, but one of the Magnificent 7 big tech firms: making its announcement to snap up Warner Bros. Discovery Inc. in a deal with a total enterprise value just shy of $83 billion far more significant than other recent media deals such as Paramount Global’s merger with Skydance Media.
The streamer’s stock closed 3% lower Friday, the day of the announced definitive agreement under which Netflix will acquire Warner Bros., including its film and television studios, HBO Max and HBO. The deal will not include WBD’s Global Networks division, Discovery Global, which was already in line to be separated into a new publicly-traded company, likely in the third quarter of 2026. Shares were up around 1.5% in pre-market trading early Monday.
Under the terms of the agreement, each WBD shareholder will receive $23.25 in cash and $4.50 in shares of Netflix common stock for each share of WBD common stock outstanding at the closing of the transaction.
Investors will be keen to determine how long adding inventory such as The Big Bang Theory, The Sopranos, Game of Thrones, The Wizard of Oz and the DC Universe, will take to offset the mammoth cost of the acquisition.
The key will be whether additional popular titles will be enough to hold onto subscribers in an increasingly competitive streaming TV market. Netflix stopped reporting its subscriber numbers earlier this year but has increased its revenue – its main metric of growth – but many are skeptical.
“Whether [the expanded inventory] enables it to grow engagement, attract, and retain more subscribers remains to be seen,” said Divyaunsh Divatia, Research Analyst at Janus Henderson Investors. “This will determine the magnitude and timeline of the payoff as this deal is primarily a bet on whether Netflix is able to execute and monetize WBD content at a much better rate than WBD could on their own.”
The gamble is exacerbated by fast-evolving consumer habits which has seen growth for platforms such as YouTube and TikTok.
“They’re also levering up on premium entertainment at a time when competition on engagement from short form video is expected to intensify especially if AI models democratize video creation at an increasing rate,” added Divatia.
But it could be some time before investors get to evaluate all of this, with regulatory approval unlikely to be swift; not just in the US but also in other major markets where Netflix has a significant dominance in streaming, such as the EU. Netflix is hoping its acquisition will complete in 12-18 months and has agreed to pay WBD a break-up fee of $5.8 billion if the deal fails to complete.
Doug Creutz, senior research analyst specialising in media and video games at TD Cowen, opined as news of the deal broke that “it is far from certain that the deal gets approved.”
Josh Brown, CEO at Ritholtz Wealth Management and long-time Netflix bull is pulling back from the Magnificent 7 firm – selling 85% of the stock held - in what he calls “just a portfolio management decision.” He told CNBC that he thinks the WBD is a great deal for Netflix but that there will be more near-term opportunities while it “works its way through the meat grinder.”
Paramount announced a rival bid Monday, but it wants to acquire all of WBD, including the parts due to be spun out.
The cash tender offer is to acquire all of the outstanding shares of Warner Bros. Discovery, Inc. for $30.00 per share in cash. Paramount's proposed transaction is for the entirety of WBD, including the Global Networks segment.
David Ellison, Chairman and CEO of Paramount, said: "WBD shareholders deserve an opportunity to consider our superior all-cash offer for their shares in the entire company.
Paramount is also confident that it can meet the regulatory requirements of a takeover.
Before the latest plot twist of Paramount's hostile bid, Capital Wealth Planning CEO and founder Kevin Simpson also told CNBC’s Halftime Report that cutting Netflix holdings is a “mistake” and that he would be a buyer of the firm’s stock, despite acknowledging that the acquisition of WBD may not be accretive for perhaps three years. Unlike Brown though, he does not think Netflix stock will be “in a box” until the deal completes. Instead, he sees it as range bound and his firm’s ability to write covered calls is supporting his bullish view.
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