By Jen Saarbach & Kristen Kelly, Co-Founders of The Wall Street Skinny
If you’re wondering why Netflix would change anything after seemingly “winning” the bidding war against Paramount Skydance (PSKY) and Comcast, you’re not alone. At first glance, it looks like Netflix already secured the deal. The Warner Bros. Discovery board accepted their offer, but shareholders haven’t voted yet. And Paramount hasn’t gone away. In fact, they’re suing Warner Bros., claiming that their $30 per share all-cash bid is being unfairly dismissed and that the board hasn’t properly disclosed how it valued Netflix’s offer.
So while Netflix may appear to be ahead, the deal isn’t done, and there’s a new complication.
The actual value of Netflix’s offer is quietly falling.
When the deal was announced, Netflix offered $27.75 per share. That consisted of $23.25 in cash and $4.50 in Netflix stock. At the time, Netflix’s stock price was $103.22. But today, Netflix shares are trading closer to $88. That matters because the $4.50 was a fixed value only up to a point.
The deal included something called a collar, which protected the value of the stock portion as long as Netflix’s stock stayed within a certain range, specifically, between $97.91 and $119.67. If the stock dropped below $97.91, the deal switched from a fixed dollar value to a fixed exchange ratio. That’s exactly what happened. Now, instead of receiving $4.50 in value, Warner Bros. shareholders are set to receive 0.046 shares of Netflix stock per share of WBD. At $88 per share, that’s worth only about 0.046 x $88 = $4.05.
That means the total offer value is no longer $27.75. It’s $23.25 in cash plus $4.05 in stock, or $27.30. That 45-cent difference may not seem like much, but in the context of a multibillion-dollar transaction (and an active legal challenge from a competing bidder) it’s significant.
So why might Netflix switch to an all-cash offer? To remove uncertainty, firm up their offer value, and make it easier for WBD shareholders to compare their bid directly with PSKY’s. It’s a move that could accelerate the shareholder vote and eliminate any appearance that their offer is weakening…especially when PSKY is arguing that their deal is cleaner and more valuable.
We’ll keep watching this one closely. As far as corporate drama goes, it’s starting to feel like prestige TV in its own right.