By Andrew Bary

The winner in the takeover battle for Warner Bros. Discovery will be the loser.

That's because the winner -- either Netflix or Paramount Skydance -- will overpay for the media company and take on a lot of debt. Wall Street has cooled on both stocks as they tussle for control of Warner Bros.

Netflix reached a deal for the company in early December, but Paramount has insisted that its offer is superior. The bidding war is coming to a head. Warner this past week gave Paramount until Feb. 23 to improve upon its offer of $30 a share in cash for the whole company.

If Paramount does come up with an offer superior to Netflix's deal, Netflix would retain "matching rights," Warner said this past week. The Kalshi prediction market was rating the contest a tossup this past Friday.

Investors aren't thrilled with either company's pursuit of Warner. The winner will pay a premium price when media stocks and valuations remain under pressure.

Netflix has seen its stock drop 25%, to $77, since the merger agreement was reached on Dec. 5. Paramount is off 26%, to $10.94, since then. Warner stock, at $28.53, is up 16% over the span.

Investors should consider buying the losing bidder's stock when a final deal is set. Netflix stock could get a nice bump if it's topped by Paramount since Wall Street wishes it would give up its pursuit and focus on its dominant global streaming platform. It would also pick up a $2.8 billion breakup fee. Netflix now trades for 25 times projected 2026 earnings -- a reasonable multiple, given estimated growth of more than 15% annually over the next few years as a stand-alone company.

Paramount stock could also gain if it loses since it would avoid taking on debt and potentially be in a position to buy Warner's assets more cheaply later.

LightShed Partners analyst Rich Greenfield wrote last week that Paramount and its CEO David Ellison "should walk away now." Greenfield's view is that the Warner cable assets could become available and the entire company could become available if a Netflix/Warner deal is blocked on antitrust grounds.

The Netflix/Paramount situation is reminiscent of the battle for 21st Century Fox in 2018, when Walt Disney vied with Comcast for the bulk of Fox's assets.

Disney ended up winning -- and overpaying -- with its offer of $71 billion. The deal boosted Disney's debt and contributed to the underperformance of its shares, which have been flat since then, compared with a near tripling in the S&P 500 index.

David Zaslav, CEO of Warner Bros. Discovery, has done a good job of orchestrating the bidding process and playing what looked like a tough hand. The company's stock traded as low as $8 in April 2025, and its debt -- about $30 billion at the end of September -- was viewed as an impediment to a lucrative deal.

As it now stands, Netflix has a deal to buy Warner's HBO, movie studio, TV production, and streaming-related assets for $27.75 a share in cash, or $82.7 billion, including assumed debt.

Warner's cable TV properties, including CNN, Discovery, and the Turner Networks, would be spun off to Warner shareholders, as a new publicly traded company called Discovery Global, before the Netflix deal closes. The superiority of the Netflix offer hinges on the value of those cable networks, which Warner's investment bankers have put at $1 to $4 a share, according to a proxy statement filed this past week.

That cable valuation is the subject of debate because Warner's cable network financial results are under pressure from cord-cutting.

Paramount has argued that there is no equity value in the business, assuming that Warner allocates about $17 billion in debt to it. One negative read on the Discovery Global valuation is Versant Media Group. The cable spinoff from Comcast that owns CNBC, MS NOW (formerly MSNBC), and the Golf Channel, has performed poorly in the stock market since it began trading in early January. Versant is now valued at just 3.5 times projected 2026 earnings before interest, taxes, depreciation, and amortization, or Ebitda, based on its enterprise value (equity market value plus net debt).

Paramount has offered $30 a share in cash, or $108 billion, with an additional 25 cents per share per quarter after the end of 2026 if the deal doesn't close before then.

All of this could change. Warner said this past week that a Paramount representative indicated that it was prepared to pay $31 a share, and that the offer "wasn't Paramount's best and final" offer.

This has prompted speculation that Paramount might go to $32 to $33 a share -- or perhaps even higher. Netflix, however, may be prepared to match any Paramount bid in that range, with Netflix co-CEO Ted Sarandos telling CNBC this past week, "Let them make a move, and then we will see where the next step takes us." With a $325 billion market value, Netflix can prevail if it wants, even with Oracle billionaire Larry Ellison backstopping Paramount.

The Netflix offer looks rich as it now stands.

It's paying a multiple of about 25 times projected 2026 Ebitda before any corporate synergies for HBO, the Warner Bros. movie studio, TV production, and other assets when industry leader Disney commands just 10 times 2026 Ebitda.

Netflix probably would take on more than $50 billion of debt, leveraging what had been a strong balance sheet. Many investors aren't happy with the signaling effect of the deal with Netflix indicating that it needs more traditional media assets to be competitive.

The company argues otherwise, saying the deal will strengthen its platform and offer consumers more choice and a better streaming experience.

Netflix built its dominant business under former CEO Reed Hastings without a major deal. It should stay the course.

Write to Andrew Bary at andrew.bary@barrons.com

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February 20, 2026 16:01 ET (21:01 GMT)

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