r/stocks
Isn't Netflix's bid higher than paramount for the assets being procured?
User incorrectly claims Netflix is bidding for Warner Bros assets at a higher multiple than Paramount, based on flawed financial premises.
- The post relies on factually incorrect premises (Netflix is not acquiring Warner Bros; Paramount is merging with Skydance, not buying WB).
- Financial analysis is built on hallucinated deal structures and revenue targets, rendering the valuation comparison invalid.
Please help me if my understanding is correct:
Paramount has agreed to a $31 per share buyout for all of Warner Brothers, but Netflix is only offering $27 per share. I feel such newspaper headlines are misleading because it's not an apple's to apple's comparison.
Now, Netflix is only interested in streaming services and studios. In fact, not purchasing these new TV channels might be equivalent to the difference of $4 per share. I think the better revenue comparison is bid per revenue.
Warner Brothers Revenue:
Streaming Division - $2.8 Billion
Studios - $3.2 B
Global Linear Networks - $4.2B
Netflix revenue target = $6 B
Paramount Revenue target = $10.2 B
With $27.75 per share, netflix is offering 13.8x revenue
While Paramount is offering 11.0x revenue.
So Netflix is actually bidding at a higher revenue multiple for better quality assets.
Netflix if acquired could have easily become a monopoly and have squeezed Paramount's already debt laden balance sheet and subscription users.
Are there better metrics to track apart from revenue multiple?
Paramount offered a sweetened deal with more kickers like being able to pay for the breakup fees for Netflix (so Netflix didn’t challenge cause the got to walk away clean and get a giant cash infusion and didn’t want to fight anymore), they offered a breakup fee if it doesn’t work out to WBD if merger failed, they offered a tucking deal so if it doesn’t close fast enough they pay more to investors. They didn’t value the cable assets but now we are seeing they may be used to sell off as concessions to regulators like in the EU they plan to sell their kids channels so they don’t have a monopoly.
Everyone also knew that they had a fast track in the current Trump admin. Literally Ted from Netflix flew into Washington then realized he wasn’t getting meeting with Trump and heard the new bid by paramount and decided to walk knowing he wouldn’t win the White House plus get a breakup fee.
Also paramount reorganized some of the funding to make it better than their last offer. Also it showed they would just keep raising it and Netflix knew it wasn’t worth pursing.
My guess is, if it gets past state and EU regulators, they won’t be able to keep paying the debt obligations and prepare to sell off specific assets that Netflix could then if they were of any value scoop up using the paramount breakup fees.
It’s the biggest joke of a deal but if you look at the financing and who it’s coming from, the only people who will be hurt first is the Middle East countries backing like 20b of it, then Larry is putting up a ton of his equity on the table then the banks. Meanwhile David got to take home a massive bonus and can walk away with a good amount to $$$ personally. He won’t regardless of what happens.
Very insightful and extremely interesting, thanks for sharing!
Netflix should've used the breakup fee to buy the entirety of Lions gate for free.
With the high debt, Netflix knows they can buy lower in a year or 2, when PSKY goes BK.
fun fact one of the earlier deals failed because they couldn’t verify where the middle east money was directly coming from. in the accepted deal it drops the condition for validating those funds!
I'm trying to learn about the deal to hone my skills, don't have an active position.
It's not so simple because the paramount offer includes the other assets (Cable TV) that are declining / supported by the core streaming business. Therefore, there offer is more attractive because it takes these off the WBD shareholders hands (I would guess these assets wouldn't have been able to survive for long on there own if spun off)
This, package deal is better to help sell the declining assets
Their
Yes, always has been
I thought the NFLX bid was rejected a couple months ago?
Yes it’s rejected as WB cited paramount’s offer as superior but Netflix offer looks better on paper (shared above) so wanted to understand is my understanding correct or is there more nuance involved.
Excellent comment.
Added the latest data in edit, it actually widens the gap further.
I don't know much about the deal, and I don't own any of the stocks mentioned, so I'm a bit ignorant. To me I feel it's probably a good thing for whoever doesn't buy it. It was a disaster for both att and discovery.
Reading the post.... it has to be a bot or someone who really doesn't understand tenses.