Your move, Netflix.
A day after Warner Bros. Discovery stunned the industry and the business world by extending merger talks with Paramount, Netflix shares jumped 6% as of the final minutes of Wednesday trading.
The question animating the stock movement and captivating Hollywood is straightforward but full of implications: Will the streaming giant raise its pending offer or should it just bail?
The company has stayed mum since the WBD board’s decision, but it is planning another push with politicians and regulators to make its case. Co-CEO Ted Sarandos is scheduled to meet with Trump Administration officials Thursday at the White House. Sources confirmed the meetings to Deadline following an initial report by Politico.
That flurry of Washington, D.C. activity suggests Netflix isn’t planning to fold just yet.
While the company appears to remain committed, sentiment on Wall Street has turned negative toward since chatter began about its potential talks with WBD. Netflix shares have fallen almost 30% since last November. The companies announced a $82.7 billion deal last December that would see Netflix acquire the studios-and-streaming division. Paramount’s rival, initially hostile offer, is for all of WBD and was increased yesterday to $31 per share from $30, on top of other sweeteners.
In extending the original 7-day window for negotiations with Paramount, the WBD board cited the possibility that the improved offer could be deemed superior to Netflix’s. If the board were to switch its allegiance to Paramount, Netflix would then be granted a four-day period when it could re-start negotiations with WBD. It is unclear when that would take place. WBD has scheduled a shareholder vote on the Netflix transaction on March 20.
Share price notwithstanding, the general expectation is for Netflix to stay in the game. Sarandos has been on a promotional tour over the past week or two, including at last Sunday’s BAFTA Film Awards red carpet, asserting his view that his company is better-positioned than Paramount. At the same time, he has repeatedly said, as he told CNBC last week, that the company’s executives have long been “incredibly disciplined buyers.”
Sarandos also has characterized the Warner assets as complimentary and desirable but not essential – addressing another investor concern, that the company is forcing a deal in order to paper over slowing growth in its core business.
There are obviously major financial considerations by all three parties in the proposed transaction, but the human factor of the companies’ C-suite occupants will also play a key factor, industry and Wall Street sources note.
“Ultimately, decisions are made by people, not spreadsheets,” wrote Laurent Yoon of Bernstein Research in a note to clients. “Numbers matter, but they vary driven by information asymmetry and what management chooses to believe. While the ‘math’ supports Netflix going materially higher, that does not mean it should. Netflix has built a reputation for disciplined capital allocation – a point management has emphasized repeatedly. If the price tag no longer makes sense for Netflix, and if this deal is likely to hinder PSKY-WBD to invest aggressively in growth near-term, walking away remains a perfectly rational outcome.”
Robert Fishman of MoffettNathanson expects the final bids to go well higher than the $31 mark. (Netflix’s is $27.75, but the deals are not apples-and-apples because Paramount is acquiring the whole company, while Netflix is just getting the studios and streaming operation.)
In a client note last Friday before the Tuesday drama, Fishman said Paramount could take the prize if it were to go to $34, while Netflix wouldn’t (on paper) be able to justify going higher than $30.
Fishman attached a highly relatable caveat. “We realize that includes many assumptions,” he wrote of the share price predictions, “and we have realized that media M&A rarely plays out as expected.”
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