Netflix surges as investors cheer decision to exit Warner Bros race

Netflix jumped more than 10% on Friday as investors applauded its decision to exit the race for Warner Bros Discovery, a months-long bidding war with Paramount Skydance for some of Hollywood’s most prized assets.

Netflix declined to match Paramount’s latest $31 per share bid or raise its offer of $27.75 a share for Warner Bros’s studio and streaming assets, stating that the deal was “no longer financially attractive”.

The decision was welcomed by investors. Shares of the streaming giant had shed more than 18% since Netflix announced its deal with Warner Bros on December 5.

The latest move is a “tick in the box” for discipline, said Ben Barringer, head of technology research at Quilter Cheviot.

“What you want from a management team is an ability to look at acquisitions, value them, pay what they think is a fair price, but to not overpay.”

Analysts and investors had questioned whether Netflix’s bid was a defensive attempt to block a future competitor or an offensive shift away from its historically disciplined build-versus-buy approach.

“A positive turn of events in our view, as we believe NFLX’s withdrawal from the race will leave it free to refocus on its business, while its closest competitors grapple with long and distracting regulatory approval and merger integration processes, and with PSKY saddled with sizable deal debts,” HSBC analysts said.

‘GOOD BUSINESS SENSE’

Shares of the David Ellison-led Paramount, meanwhile, were up 17%.

Paramount’s deal, valued at $110 billion, including debt, represents nearly 13 times Warner Bros’ EBITDA this year, according to estimates from LSEG. That is well above what Paramount is worth on the same basis, which is 7 times its estimated earnings.

A tie-up with Warner Bros would allow Paramount’s storied Hollywood studio to tap into Warner’s deep trove of intellectual property -including franchises such as “Fantastic Beasts” and “The Matrix” – across film, television and streaming.

“WBD’s largest asset is declining and the company is still under debt from its last failed merger. But this deal is more about Ellison taking over Hollywood and ego than it is about good business sense,” said Ross Benes, senior analyst at Emarketer.

For Paramount’s streaming unit, a combination with HBO Max and Discovery+ would reshape its position in a streaming era long dominated by Netflix.

“Paramount was the streaming market laggard, and it needs Warner Bros’ content and capabilities to play catch-up. It will need more than Harry Potter for the deal to work its magic and enable Paramount to fight off Netflix, Disney and Amazon in the streaming wars,” said Dan Coatsworth, head of markets at AJ Bell.

In the fight for Warner Bros, the Paramount consortium backed by billionaire Larry Ellison and led by his son, Paramount CEO David Ellison, also boosted its termination fee to $7 billion and expanded its financing commitments, including $45.7 billion in equity.

“There is a right price and wrong price for any acquisition, and the pressure is now on Paramount to prove the big financial outlay is worth it,” said Coatsworth.