Netflix stock is soaring as investors praise the company’s decision to exit Warner Bros. Discovery’s months-long bidding war with Paramount Skydance for some of Hollywood’s most valuable assets.
Shares rose more than 10% on Friday. This followed Netflix’s decision Thursday night not to meet Paramount’s latest bid of $31 per share or increase its offer of $27.75 per share for Warner Bros.’ studio and streaming assets, saying the deal was “no longer financially attractive.”
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Warner had given Netflix four business days to submit a counteroffer to Paramount’s latest bid, but instead Netflix responded in less than two hours, refusing to raise its offer. He said the new price that had to be paid made the deal “no longer economically attractive.”
“We believe we have strong stewardship of Warner Bros.’ iconic brand,” Netflix co-CEOs Ted Sarandos and Greg Peters said in a joint statement. “But this deal has always been a ‘nice to have’ at the right price, not a ‘must have’ at any price.”
This decision was welcomed by investors. Since Netflix announced its deal with Warner Bros. on Dec. 5, the streaming giant’s stock price has fallen more than 18%.
Ben Ballinger, director of technical research at Quilter Cheviot, said the move was a “checkbox” to ensure discipline.
“What management teams need is the ability to consider acquisitions, evaluate them, and pay what they think is a fair price, but not too much.”
Analysts and investors had wondered whether Netflix’s bid was a defensive attempt to thwart future competitors or an aggressive shift from its historically disciplined build-versus-buy approach.
“With NFLX out of the race, we believe NFLX will be free to refocus on its business, and we think things will turn around as its closest competitors grapple with long and distracting regulatory approvals and merger integration processes, and PSKY has significant trading debt,” HSBC analysts said.
“Hollywood and Ego”
Meanwhile, shares in David Ellison’s Paramount rose 17%.
LSEG estimates Paramount’s acquisition price, including debt, is valued at $110 billion, or nearly 13 times Warner Bros.’ EBITDA (earnings before interest, taxes, depreciation and core earnings) this year. That’s well above Paramount’s value on the same basis, which is 7 times expected earnings.
The partnership with Warner Bros. will give Paramount’s storied Hollywood studio access to Warner’s deep treasure trove of intellectual property across film, television and streaming, including franchises such as “Fantastic Beasts” and “The Matrix.”
“WBD’s biggest asset is dwindling, and the company is still carrying debt from a previous failed merger,” said Ross Venez, senior analyst at eMarketer. “But this deal is more about Ellison inheriting Hollywood and ego than good business sense.”
For Paramount’s streaming division, the combination of HBO Max and Discovery+ will reposition itself in a streaming era long dominated by Netflix.
“Paramount is lagging in the streaming market and needs Warner Bros.’ content and capabilities to catch up,” said Dan Coatsworth, head of markets at AJ Bell.
In the battle for Warner Bros., the Paramount consortium, backed by President Donald Trump’s billionaire ally Larry Ellison and led by his son, Paramount CEO David Ellison, also increased its termination fee to $7 billion and expanded its financing commitments, including $45.7 billion in stock.
“There’s a right price and a wrong price for any acquisition, and the pressure is on Paramount to prove it’s worth spending a lot of money on,” Coatsworth said.
Concerns about editor turnover
The proposed merger still needs the green light from both Warner shareholders and regulators, but has raised both antitrust concerns and questions of political influence.
A merger would put CNN under the same roof as CBS, which has already seen significant editorial changes under the new Skydance ownership. Paramount took steps to appeal to a more conservative audience in its news operations, particularly by making Free Press founder Bari Weiss the editor-in-chief of CBS News. And critics have warned that if the company’s bid for Warner is successful, similar changes could occur at CNN, the network that has long drawn President Trump’s ire.
“Politics played a big role in this deal, and politics were on Paramount’s side from the beginning,” said Mike Proulx, vice president and director of research at market research firm Forrester.
Leading Democratic lawmakers are also sounding the alarm about the Republican president’s ties to companies like Paramount and the potential impact of increased corporate power.
Democratic Sen. Elizabeth Warren, a longtime antitrust hawk, said in a statement Thursday night that “a small group of billionaire Trump supporters are trying to control the viewership and charge whatever they want.” She also called the potential merger of Paramount and Warner an “antitrust disaster.”
It remains to be seen how regulators will react to Warner and Paramount’s deal. The U.S. Department of Justice has already begun a review, and other countries are expected to do the same.
Warner shareholders will also need to be convinced. However, Paramount has taken on billions of dollars in debt to finance the proposed acquisition. Critics warn that it will only increase the likelihood of job losses and other layoffs in the future. Foreign sovereign wealth funds have also invested in the proposal, which is under further scrutiny.
