In what will likely go down as one of the most drama-filled acquisition sagas in recent years, it finally looks as though Paramount Skydance(NASDAQ: PSKY ) In the battle emerged as the winner who will get it Warner Bros(NASDAQ: WBD ).
In the news release, Netflix (NASDAQ: NFLX ) Announced that Warner Bros. The board of directors informed the company that Paramount’s latest offer was an “excellent offer”. Netflix also said it would not match Paramount’s bid, paving the way for Paramount to acquire Warner Bros., although the deal would still need regulatory approval.
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Given that Netflix won’t be able to acquire certain assets from Warner Bros., an effort the company has spent months trying to accomplish, where does that leave Netflix? Is the stock a buy?
Image source: Netflix.
In December, Netflix announced an agreement with Warner Bros. to acquire the company’s film and television studios, including HBO, for an equity value of $27.75 per share, and an enterprise value of $83 billion, of which Warner Bros. estimates approximately $11 billion. Credit Warner Bros. Cable assets, including top networks like CNN, will be spun off into a separate company. Netflix’s offer was initially part cash and part stock, but the streaming giant eventually made the deal all cash to make it more attractive.
However, Paramount also wanted Warner Bros. Received by Warner Bros. Following the announced deal between Netflix and Paramount, Paramount immediately announced a hostile all-cash bid of $30 per share, or about $78 billion, for the entire company, including cable assets.
Paramount CEO, David Ellison, is the son Oracle Founder Larry Ellison, who is personally responsible for more than $40 billion in equity financing behind Paramount’s offering, as well as damage claims.
Initially and for much of the ongoing discussion, Warner Bros.’ The board informed Paramount that Netflix had a more attractive offer. But it became clear that Paramount would not back down. The company sweetened its deal by offering to pay a $2.8 billion break-up fee that Warner Bros. would owe Netflix if it went away.
It also agreed to pay shareholders a strike fee of $0.25 per share ($650 million) for each quarter that the deal does not close by a certain date. It expressed confidence in Paramount’s ability to obtain regulatory approval. Ultimately, Paramount raised its offer to $31 per share and offered Warner Bros. a $7 billion break-up fee if regulators did not approve the deal.
Despite pulling out of the deal, I feel like Netflix has come out unscathed from this whole ordeal and has merit in pursuing such an acquisition. For one, Netflix sold off quickly when it announced the deal, and after announcing it would go away, the stock popped.
Investors were apparently unhappy with the acquisition because Netflix had to take on huge debt to finance the expensive deal. Furthermore, Netflix’s organic growth strategy is working, and the company is not a fixed acquisition. So the fact that Netflix is no longer pursuing the deal is a near-term win for shareholders, and Netflix will also receive a $2.8 billion break-up fee.
For what it’s worth, I really felt that the acquisition made sense for Netflix and could give the company a lot of growth, considering that Netflix would have gotten all the great content from Warner Bros. HBO has some of the strongest properties in the world, including Game of Thrones, Harry Potter, and DC Studios, not to mention old, historic shows. the sopranos that people see frequently.
These are truly unique franchises that are hard to replicate in their ability to attract long-term, loyal audiences. Netflix has a great technology stack and marketing machine, so I felt like pairing HBO content with those qualities could be a force to be reckoned with. I also did not feel that regulatory approval was out of the question.
Ultimately, I still view Netflix as a buy because, as I mentioned above, the company has grown, expanded its customer base, and reached 325 million paying subscribers worldwide.
At the same time, Natflix has successfully increased subscription rates and has a significant growth path in its new, expanding advertising revenue stream. While the acquisition of Warner Bros. film and television studios and HBO may be a huge long-term opportunity, I definitely think Netflix will be fine and that the stock will return to the highs it saw last year.
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Bram Berkowitz has no position in any of the stocks mentioned. Motley Fool on Netflix, Oracle and Warner Bros. Discovery has and offers positions. Motley Fool has a disclosure policy.
Netflix is calling it quits on its Warner Bros. acquisition. Is the stock a buy? Originally published by Motley Fool
