Warner Bros. Investors Want a Netflix, Paramount Bidding War. Why They May Not Get One. -- Barrons.com

By George Glover

Warner Bros. Discovery has given Paramount Skydance a chance to one-up Netflix in the battle for the CBS owner.

But while there are sure to be further plot twists in the Hollywood takeover saga, Warner's shareholders shouldn't expect a full-blown bidding war.

Paramount said in a statement on Tuesday that although Warner's actions were "unusual," it was "prepared to engage in good faith and constructive discussions."

Warner said earlier in the day that it would give Paramount until Feb. 23 to make its best and final offer, adding a senior representative for Paramount had signaled it would be willing to raise its offer to $31 a share.

Warner stock jumped 2.7% Tuesday and was up another 0.5% to $28.90 in premarket trading Wednesday -- above the Netflix offer price of $27.75.

But Paramount's statement later on Tuesday made no mention of a $31 a share bid. For now, the entertainment company is still offering $30 a share for all of Warner Discovery, plus a 25 cents a share "ticking fee" payable to shareholders for each quarter it hasn't closed the deal beyond the end of 2026.

If Paramount doesn't offer more before the Feb. 23 deadline, then that would seemingly scuttle any chances of this escalating into a bidding war that would drive Warner shares higher.

In a scenario where Paramount did bid $31 a share or more, Netflix may decide its best option was to walk away. The video streamer's latest all-cash offer was to acquire Warner's streaming and studios businesses for $27.75 a share, with the Discovery Global cable assets being spun out to investors.

Netflix may be willing to offer an additonal $1 a share but "will not chase WBD to the ends of the earth," Raymond James analyst Ric Prentiss wrote in a research note on Tuesday.

"We do not believe that Netflix is willing to win WBD at any price; a $1 raise is palatable, but in the event that the bidding rises beyond $32 to $33, we see Netflix as less willing to match," he added.

Warner's board is still recommending that its shareholders vote for Netflix's offer at a special meeting on March 20.

Because Netflix is proposing to spin out the Discovery shares, the bidding war will be decided by what investors think those are worth. Paramount has repeatedly said that the cable assets have no equity value.

Deutsche Bank analyst Bryan Kraft said in a research note that the Discovery equity was worth less than zero, citing the multiple that CNBC owner Versant Media Group is trading at.

Versant, which is seen as a comparable company for Discovery, debuted at a modest equity valuation last month. As of Tuesday's close, it was fetching just 5.5-times its projected earnings for 2026.

Even on the assumption that Discovery would trade at a premium to Versant, Kraft estimates that Netflix's current offer would be worth 2% less than Paramount's official $30 a share bid.

Write to George Glover at george.glover@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires