Morningstar

Paramount’s Revised Bid Changes Little as Warner Shareholders Decide If Netflix’s Bid Is Better

We doubt the current Paramount amendment will be a determining factor, but it could make a difference at the margins.

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)

With a tender offer to Warner Bros. Discovery WBD shareholders outstanding, Paramount Skydance PSKY revised details of its bid but maintained the value: $30 in cash per share. Larry Ellison is now personally guaranteeing the equity financing, and Paramount will pay Warner $5.8 billion if it cannot complete the deal.

Why it matters: Ellison’s financial backstop addresses one of the reasons Warner’s board endorsed Netflix’s NFLX offer over Paramount’s. However, Warner’s board also cited several other reasons for its decision, so we don’t anticipate that this Paramount revision will change its recommendation.

  • Shareholders will still ultimately decide which offer to take. We doubt the current Paramount amendment will be a determining factor, but it could make a difference at the margins. We hadn’t seen financing as a major concern.
  • We estimate that the value of the proposed deals is extremely similar and that both face regulatory challenges that can ultimately be overcome. The certainty of the cash offer and perception that it will face less federal regulatory pushback in the US has led us to prefer the Paramount bid.

The bottom line: We maintain our fair value estimates of $28 per share for Warner, $20 for Paramount, and $77 for Netflix. We still believe Warner is likely to be acquired, Paramount is more likely to win, and the price may be more than $30 per share.

  • We don’t expect the Paramount amendment to cause Netflix to revise its offer. While we think tendering shares at the current offer is best for Warner shareholders, we also believe Paramount may raise its bid if it cannot secure enough shares by its Jan. 21 deadline.
  • However, if not enough shares are tendered and Paramount doesn’t sweeten its offer, shareholders are left with the Netflix deal, entailing a slightly longer and potentially more difficult regulatory path, as well as dependence on the value of the Netflix stock price and Discovery Global shares they will retain.

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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