Netflix stock price rises along with Paramount while WBD falls. How the merger shakeup is impacting markets

Last night’s surprise announcement from Netflix that it was abandoning its Warner Bros. takeover bid in the wake of a “superior” offer from Paramount Skydance has sent shockwaves through both Hollywood and Wall Street. And investors in all three companies have reacted strongly.

Here’s what you need to know.

What’s happened?

Yesterday, Warner Bros. Discovery said it has determined that a revised bid for its cinema and television properties from Paramount Skydance was a “superior proposal” to Netflix’s long-standing offer of $82.7 billion.

Paramount, which has been in a hostile bidding war with Netflix over the movie studio, issued a new proposal to Warner Bros. on Tuesday.

That revised proposal saw Paramount offer roughly $111 billion for all of Warner Bros. Discovery’s assets.

To put those numbers on a per-share basis, it meant that while Netflix was offering roughly $27.75 per share, Paramount was offering $31.

Yet those numbers aren’t exactly an apples-to-apples comparison. That’s because Netflix was looking to acquire only Warner Bros. Discovery’s movie and streaming divisions, including the Warner Bros. film studio and HBO Max streaming service.

Paramount’s offer, by contrast, wants all of Warner Bros. Discovery, including its television properties, which consist of CNN, Discovery Channel, Turner Classic Movies, and many more.

Executives at Warner Bros. Discovery had made it no secret that they were more amenable to a takeover by Netflix instead of David Ellison’s Paramount Skydance, but in the end, Hollywood is a business, and money speaks louder than personal preferences.

And that money made Warner Bros. Discovery deem Paramount’s offer a “Company Superior Proposal” as defined by its current Netflix merger agreement. As a result, Netflix was obligated to come back with a counteroffer within four days.

Netflix says WB is not worth the higher price

But in a move that surprised many in Hollywood and on Wall Street, Netflix didn’t need four days.

Within hours of Warner Bros. Discovery designating Paramount’s offer superior, Netflix announced that it was bowing out of the acquisition battle.

In a statement announcing the surprising withdrawal, Netlfix’s co-CEOs, Ted Sarandos and Greg Peters, said that the company was “disciplined” and that after Paramount Skydance’s new offer, a Netflix-Warner Bros. “deal is no longer financially attractive.”

The CEOs added: “this transaction was always a ‘nice to have’ at the right price, not a ‘must have’ at any price.”

For its part, Warner Bros. Discovery issued a statement from CEO David Zaslav, saying, “Netflix is a great company and throughout this process Ted, Greg, Spence and everyone there have been extraordinary partners to us.”

“We wish them well in the future,” Zaslav added. “Once our Board votes to adopt the Paramount merger agreement, it will create tremendous value for our shareholders.”

NFLX, PSKY, and WBD stock prices swing

While Hollywood will be dealing with the surprise withdrawal of Netflix’s offer for some time to come, investors reactered immedialy—impacting the stock prices of all three companies involved in the dramatic announcement.

Despite Netflix walking away from its deal (and thus abandoning the possibility of owning the lucrative film and streaming rights to such properties, including Batman, Harry Potter, and Game of Thrones) shares of Netflix (Nasdaq: NFLX) are currently up significantly in premarket trading.

As of this writing, the stock is up nearly 7.4% to $90.85. This stock price rise might seem antithetical at first, considering the IP that Netflix is walking away from, but it highlights how Netflix investors in general have been apprehensive of the proposed Netflix-Warner Bros. merger since it was announced in December. 

At the time of the announcement, Netflix shares were trading at around the $103 mark. As of yesterday’s market close, which was before Netflix announced it was pulling out of the deal, NFLX shares have declined nearly 19% since the merger announcement.

Investors in Paramount Skydance Corp (Nasdaq: PSKY) also seem satisfied by the news, with PSKY shares are up 7.25% over yesterday’s closing price of $11.18 to $11.99. 

So why are Paramount investors happy? It largely comes down to the fact that Paramount needs Warner Bros. more than Netflix did. Netflix is the dominant streamer across the globe, while Paramount is a relatively smaller player compared to Netflix, Disney, and Warner Bros. (via the latter’s HBO Max). 

If Paramount is to stay competitive in the future, it needs to build up its IP portfolio so that it can continue to attract paying subscribers. By acquiring Warner Bros Discovery, it can do just that.

And then we get to shares of Warner Bros. Discovery (Nasdaq: WBD). Yesterday, the stock closed at $28.80.

Currently in premarket trading, they have fallen about 2% to $28.22. While Paramount’s offer is locked in at $31 per share, today’s fall is probably a sign from investors that they are a bit disappointed that there was not a counteroffer from Netflix, which could have made their shares even more valuable. 

A Paramount Skydance deal is still far from certain

The fact that WBD shares are down likely also reflects some ongoing uncertainty in investors’ minds.

While Paramount Skydance is now the only bidder for Warner Bros. Discovery, and Warner Bros seems happy with the proposal, it doesn’t mean the two companies will certainly merge.

A combined Paramount Skydance-Warner Bros. Discovery raises a lot of antitrust and consolidation concerns for both Hollywood and linear and cable television.

Given that Paramount Skydance is interested in acquiring WBD’s film and television properties, the merger will likely face even higher scrutiny than a Netflix-Warner Bros. merger would have.

Some believe that due to the Ellison’s friendly relationship with President The President, a Paramount Skydance-Warner Bros Discovery merger may have smoother-than-expected sailing.

However, ultimately, it will be up to the Justice Department to approve the merger in the United States.

Even if the merger is approved in the United States, that doesn’t mean other regulators from around the world will approve it, and that uncertainty will be weighing on investors’ minds for some time.

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