Who will end up acquiring Warner Bros. Discovery (WBD)?
Seeking Alpha analysts Moe Value Picks, Gary Gambino, and Harold L. Vogel weigh in.
Moe Value Picks: I think Netflix (NFLX) will end up owning Warner Bros. Discovery (WBD). It is very rare that hostile bids succeed, especially given that the big three asset management firms tend to vote in favor of unanimous board decisions. That means Paramount Skydance’s (PSKY) only realistic shot is if it raises its bid, but I expect Netflix to match it anyway. The biggest risk to the Netflix bid will be Netflix’s own stock, not Paramount’s competing bid.
Gary Gambino: Paramount Skydance (PSKY) will probably end up with Warner Bros. Discovery (WBD). The merger is an existential need for Paramount to create a streaming service with the scale of Netflix (NFLX) and Amazon Prime Video (AMZN). For Netflix, the merger is simply nice to have, as they already dominate the streaming business.
I expect Paramount to come back with a $33 per share bid, backed by more cash from the Ellison Family Trust. WBD shareholders will find the all-cash deal attractive, in contrast to the mix of cash with Netflix and Discovery Global shares of uncertain value. WBD shareholders are also likely to be attracted to the higher probability of regulatory approval and less industry concentration compared to the Netflix deal.
Harold L. Vogel: It’s too early to provide a high-confidence answer. Investors will see a clearer decision path by the end of 2025, but even this is not assured as there are so many moving pieces.
My take on this is that all three deal participants — Warner Bros. Discovery (WBD), Paramount Skydance (PSKY), and Netflix (NFLX) — are already damaged goods, and it will take at least a year or two for any of them to restore some of the lost trust, luster, and investor confidence in their operating abilities.
All three have signaled that they don’t exactly have an existential problem but rather a ceiling on growth of profits over the longer term. This is not entirely their fault, as changes in technology (e.g., streaming) have changed the operating dynamics and structure of media and entertainment companies. But perhaps the greatest impediment to improving growth prospects is lack of management foresight and, in some cases, mismanagement of assets.
Prospective deal debt loads are an underappreciated problem. For instance, if Netflix “wins” it will presumably and reportedly raise its debt by $60 billion. Given that recent 10-year treasury yields have risen from around 3.96% to 4.20% and, in my opinion, are heading to at least 4.40%, the deal-related interest payments alone for Netflix might diminish estimated net profits by between $300 and $500 million a year.
Thus, as noted in my SA article of Dec. 10th, the “winner” will be the “loser.”