Warner Bros. Shareholders Should Be Livid as Board Favors Netflix Deal
Warner Bros. shareholders will ultimately decide the winner of the Netflix/Paramount bidding war.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
If you had to sell a stock, regardless of when you bought it or the price you paid for it, which price would you prefer to receive, $30 or $27.75?
$30 is the all-cash price per share that Paramount Skydance (PSKY) is offering for Warner Bros. Discovery (WBD) . The Warner Bros. board is attempting to convince shareholders that $27.75, the price offered by Netflix (NFLX) in this bidding war, is the better deal, even though that deal consists of cash along with Netflix stock.
Warner Brothers has deemed Paramount’s offer "inferior" and is questioning the reliability of Paramount’s financing.
Shareholders Should Be Livid
Warner Bros. shareholders should be livid at the board’s acceptance of a lower bid that consists of cash and stock, over Paramount’s $30 all-cash bid.
Warner Bros. shareholders are already suffering due to the board’s decision. Shares of Warner Brothers changed hands at $30 on December 12 (point A). Since then, those shares have declined for three consecutive days, losing about 6%, as that $30 offer has now been rejected.
The only reason why Warner Bros. is still trading above $27.75 is because Paramount won’t take no for an answer. Instead, Paramount is appealing directly to Warner Brothers shareholders. If Paramount decided to withdraw completely from the bidding process, Warner Bros. stock would likely fall below $27.25.
Cash Vs. Cash and Stock
In a buyout, cash is preferable to stock. Netflix is offering $23.25 per share in cash, and $4.50 per share in fluctuating Netflix stock.
Those Netflix shares have been falling. Over the past month, Netflix shares have lost about 15% of their value. Over the past six months, shares of the Los Gatos, California-based streaming giant have declined by 22%.
Netflix shares could continue to slide. The stock is trading below its 50-day (blue) and 200-day (red) moving averages, which recently formed a bearish crossover (shaded yellow).
Netflix has been a great stock for years, but right now might not be the best time to own it. If the Netflix deal goes through — not a slam-dunk by any means, as regulatory approval is questionable — Warner Bros. shareholders will eventually find Netflix shares, along with some cash, in their accounts.
To be fair, Paramount Skydance shares are also looking rough, and are trading at their lowest level since August. This stock is also trading below its key moving averages. Paramount Skydance shares have fallen 16% over the past month.
That’s not a problem for Warner Bros. shareholders, since Paramount’s bid doesn’t contain any stock. Paramount’s bid is pure cash, and more of it than Netflix is offering.
Bottom Line
To call a $30 all-cash bid "inferior" while accepting a $27.75 cash and stock bid is insulting to shareholders. The Warner Bros. board is implying that Paramount is putting a tremendous amount of time and effort into making an offer it can’t actually afford. Meanwhile, there's no proof that this is the case.
What if Warner Bros. were to accept Paramount’s $30 bid? Then the onus would be on Netflix or another bidder to top it.
If that were the case, the $30 all-cash bid would become the worst-case outcome for shareholders. There would be potential for further upside. For Warner Bros. shareholders, that would be the preferred outcome.
At the time of publication, Ponsi had no positions in any securities mentioned.
