Paramount: Revised Bid for Warner Probably Won’t Win Board Recommendation

Paramount revised its offer for Warner Bros. Discovery, but did not disclose details. Variety reported that the offer would likely be for $32 per share, up from $30. Netflix has four days to respond, and it may raise its offer of $27.75 per share, which is only for Warner’s streaming and studio businesses.

Why it matters: Warner’s board felt Netflix’s offer was superior, all details considered, to Paramount’s offer of $30 per share for the entire company. We aren’t convinced that an additional $2 is enough to allay the board’s concerns, but we wouldn’t be surprised to see Netflix make a modest adjustment.

• We expect shareholder lawsuits if Netflix is the ultimate winner, and because the deals are not apples to apples—with the suitors not vying for identical assets and other details surrounding the respective bids requiring discretion—determining which deal is better will always be subjective.
• Assuming Netflix doesn’t raise its offer by more than Paramount has—a near certainty, in our view—we will still believe the Paramount offer is superior. Our opinion is based on our view that the networks business, which Netflix won’t acquire, is unlikely to be worth more than $3 per share and has very high risk.

The bottom line: We don’t believe Netflix will allow this deal to get away for an incremental $2 per share or less, so if the reported offer is accurate, we expect Warner’s board to stick with its Netflix recommendation and put the deal to a shareholder vote on March 20.

• We maintain that Warner is likely to get acquired—in full or in part—at a value that may exceed $30 per share, and we assign neither Netflix nor Paramount odds of more than 50% of completing a Warner acquisition. Paramount’s tender offer will remain outstanding if the board chooses Netflix.
• Reflecting our view, we maintain our $28 fair value estimate for Warner, $20 for Paramount, and $79 for Netflix.