Morningstar

Paramount: Both Netflix and the Warner Bros. Discovery Board Finally Get It Right

Our update on select stocks from the Entertainment industry.

A general view of the Paramount headquarters.
AaronP/Bauer-Griffin via Getty
Securities in This Article
Netflix Inc
(NFLX)
Warner Bros. Discovery Inc Ordinary Shares - Class A
(WBD)
Paramount Skydance Corp Ordinary Shares - Class B
(PSKY)

After Warner Bros. Discovery deemed Paramount’s revised bid for its company as superior to the one it had in place with Netflix, Netflix declined to exercise its right to match. We therefore expect Warner to officially accept Paramount’s offer to buy the whole company for $31 per share.

Why it matters: Netflix will receive a $2.8 billion termination fee from Warner, paid by Paramount. Warner shareholders will receive $31 per share in cash for their entire stakes in Warner. If the deal hasn’t closed by Oct. 1, 2026, Warner shareholders will receive an $0.25 per share each quarter.

  • This was absolutely the right move for Netflix, in our view. We estimated it was overpaying for Warner’s streaming and studios when it had no need to, given its extraordinarily strong business.
  • This is the best outcome for Warner shareholders, in our view, as we’ve felt that, with a higher likelihood of prompt regulatory approval and uncertainty surrounding the value and risk of the network business they would have retained, the best offer would have been $30 in cash.

The bottom line: We also think this is the best outcome for Paramount. Unlike Netflix, its business could use a shot in the arm and an immediate boost to achieve the greater scale it needs. Also, with the combination of linear networks, it can realize much more cost savings than Netflix can to offset the premium it’s paying.

  • We maintain our $28 fair value estimate for Warner, discounting the value we believe they are almost—but not completely—certain to realize within the next year. We intend to raise our fair value estimate for Netflix to $80 from $79 to account for the $2.8 billion it is set to receive.
  • We now think Paramount is likely to complete its acquisition of Warner. We are maintaining our $20 fair value estimate while we work through financial details, and we believe the stock is undervalued.

Between the lines: We don’t anticipate Paramount will face any regulatory difficulties.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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