Back in Hollywood
Another installment will come this week in the fight over Warner Bros. Discovery, which has turned into an extended soap opera. WBD’s board will reportedly (and predictably) once again reject Paramount Skydance’s offer rivaling the deal WBD has already signed with Netflix.
Paramount fixed an issue WBD complained about a few weeks ago: Paramount shareholder (and Oracle bigwig) Larry Ellison personally guaranteed the $40.4 billion equity component in Paramount's $108 billion offer. Unable to complain about that issue, WBD’s board will reportedly stick to the theme of “the offer isn’t high enough.”
That’s inherently subjective. While Paramount is offering $30 a share in cash for all of WBD, Netflix is offering a mix of cash and shares said to be worth $27.75 a share for just the streaming and studio part of WBD. WBD’s cable channels are to be spun off into a separate company ahead of the Netflix deal’s close. Shareholders in WBD will get stock in that company. It’s conceivable, then, that WBD shareholders could be better off with the Netflix deal.
That’s certainly the way WBD’s board is thinking about it, but that requires a leap of faith. WBD shareholders have to assess both the likely value of the Netflix equity they’ll receive as well as the stock they’ll get in the new cable channel spin-off.
Both of those calculations are tricky. Netflix shares have been steadily sliding downward since its interest in WBD surfaced in late October, falling 12% since the Dec. 5 announcement of the deal (including a 3% drop on Friday). The value of the Discovery stock shareholders will get is even harder to be sure of, although the calculation should get a bit easier this week. That’s because shares of Versant—the cable channel firm Comcast’s NBCUniversal is spinning off—start trading on Monday. Investors could use Versant’s valuation as a benchmark.
All that said, Paramount would be in a better position if it just raised its offer a dollar or two a share.