Squeezed by a falling share price and investor angst over the stock portion of its bid for Warner Bros. Discovery, Netflix is all but certain to make its $27.75-a-share deal for the media conglomerate an-all cash offer, On The Money has learned.
It’s unclear if the move – which still has to be approved by the streaming giant’s board – will mollify skittish investors about its bid for WBD, which initially consisted of cash and stock. Up till now, Ted Sarandos-helmed Netflix is said not to be prepared to up its offer, and the deal still relies on the uncertain value of a separate sale of WBD’s cable properties, CNN, TNT and Discovery Inc.
That said, the move to go to 100% cash as opposed to an 85-15 cash-stock split could spark an all-out bidding war for control of WBD, prompting a new counteroffer from Paramount Skydance, the mid-sized media company run by independent movie producer David Ellison, his father, the billionaire Oracle co-founder Larry Ellison, and RedBird Capital. They recently launched a hostile bid for the entire company.
So far, the team running the company known on Wall Street by its stock symbol, PSKY, have been hesitant to increase their price above its current level of $78 billion all in cash, or $30 a share. Instead they have been arguing to shareholders to reject Netflix’s terms on the grounds that the streaming giant relies too much on stock in a volatile market for media companies.
Among their arguments has been a steep decline in Netflix’s stock price – a plunge of around $160 billion over the past six months amid the bidding battle for WBD.
Despite a so-called “deal collar,” financing terms designed to maintain the $27.75 price tag, the huge decline in Netflix shares began to erode the value of the proposal. That forced bankers for the streaming giant to rethink their terms, The Post has learned.
PSKY believes that there’s another hole in the Netflix bid — the spin out of WBD’s cable properties–which could fall flat and not generate interest to give it a higher valuation.
Their arguments caused some WBD investors such as Gamco Inc.’s Mario Gabelli to demand that Netflix “simplify” its deal terms to include cash because, as he told The Post “cash is king.”
Reps for Netflix and WBD declined to comment. A PSKY rep had no immediate comment.
On Monday, Paramount turned up the heat on WBD and Netflix even more. PSKY filed a lawsuit in federal court demanding details of the board’s deliberations to conclude recently that it should select Netflix’s proposal to buy WBD’s streaming service and studio as opposed to Paramount’s proposal for the entire company. PSKY also announced a proxy battle to elect a new slate of directors to WBD’s board.
While the pressure is on Paramount to put up more money– WBD is said to want between $2 and $4 a share more from PSKY to reopen the bidding process – people inside the firm say they are playing a long game since they believe Netflix’s deal still contains too many variables, even now with an all-cash proposal.
That’s because the deal also relies on its valuation of $30.75 a share on money from a separate sale of WBD’s cable properties. Given the business environment, they might not fetch that amount. Paramount has been arguing to shareholders in its hostile that based on the poor showing of Comcast’s cable spin out, also known as Versant, the WBD sale will likely generate less than $1 a share.
