PSKY shares could remain highly volatile in the near term as Warner Bros. Discovery formally decides on its offer and the deal enters a regulatory review.
- Traders and analysts are worried about the massive debt Paramount would assume to close the deal.
- Netflix and Paramount stocks jumped on Thursday, after Netflix said it would not match Paramount’s higher offer for WBD.
- NFLX and WBD are clear winners here, tech columnist Kara Swisher says.
Paramount Global’s relentless effort to wrest a deal for Warner Bros. Discovery, Inc. away from Netflix, Inc. appears to have paid off after the streaming giant signaled it sees no rationale for raising its bid further. But at what cost? Some commentators are questioning whether the deal, now carrying a higher price tag and a heavier debt load, is truly in Paramount’s best long-term interest.
Netflix shares gained 2.3% on Thursday and a further 8.5% in the after-market session, after it said it would not negotiate further. Warner Bros. had earlier said that Paramount’s $31 per share offer constituted a “Superior Proposal" versus the deal it had signed with Netflix in December.
Paramount shares gained 10% and then another 4.7% in the after-market session.
Warner Bros. would give its final and formal verdict on the deal after a special shareholder meeting on Mar. 20.
Paramount’s Massive Bet
In recent days, Paramount not just raised its offer for WBD, now totalling $111 billion, but also committed to pay Netflix a $2.8 billion breakup fee.
Moreover, reports said that Paramount is in talks to raise as much as $57.5 billion from Bank of America Merrill Lynch, Citi, and Apollo to fund the deal. The company already had total debt of $14.8 billion as of December.
The deal also involves a massive, $45.7 billion, equity commitment from Larry Ellison, the father of Paramount Chairman Larry Ellison – a fortune that Ellison senior earned from his company, Oracle.
Ellisons' Fortunes At Stake
“Daddy Larry looks like a chump for handing over all and I have to say it’s a shock to me since he has not been a chump in his entire career,” noted tech columnist Kara Swisher said in a critical Threads thread.
“Paramount is a subpar purchaser of Warner” and would “run the entity into a wall,” she said, adding that Hollywood would see unprecedented layoffs and consolidation. Netflix and Warner Bros are clear winners, she said.
Retail Worried Over Deal Debt
Retail traders on Stocktwits appeared more concerned about Paramount’s debt burden. A user painted a rather glum scenario: “Paramount will go bankrupt in a few years on the 110B debt for WBD. Netflix will buy Paramount AND Warner in less than a decade for half the price.
“$PSKY This stock is toasted,” another user said, while another worried that it would take years for the Paramount-WBD merger to be absorbed, until which time, Paramount would have to contend with significant business headwinds.
Meanwhile, despite Paramount’s repeated claims that its deal has an easier path to regulatory approval, the government would still scrutinize the deal afresh on antitrust grounds.
Even though PSKY shares jumped on Thursday, there could be a significant overhang in the months ahead.
For updates and corrections, email newsroom[at]stocktwits[dot]com.<
