In early December, Netflix agreed to acquire Warner Bros. Discovery in a deal valued at $72 billion. Paramount Skydance has since launched efforts to disrupt the agreement, seeking to acquire Warner Bros. for itself.
Reports today indicate Netflix is considering amending its bid to an all-cash offer for Warner Bros.' studio and streaming assets. The remaining cable and broadcast television stations, including CNN, TNT Sports, Discovery, and several European channels, would be spun off into a new entity called Discovery Global before the deal closes.
Under the original agreement, shareholders would receive $23.25 in cash per share, Netflix shares worth approximately $27.72 in total, and shares of the Discovery Global spin-off company. The boards of directors of both Warner Bros. and Netflix have unanimously agreed to the deal.
Paramount CEO David Ellison, having lost out in the boardroom, mounted a hostile takeover bid, offering to buy stock directly from investors for $30 per share. He called Netflix's bid "inferior," alleging that the Discovery Global ownership represented "zero equity value," though previous estimates placed the value at about $4 per share. Ellison also announced plans for a proxy fight, intending to nominate his own slate of directors to Warner Bros.' board.
However, recent developments suggest the cable channels may be worth more than Ellison claims. Earlier this month, Comcast completed the spin-off of Versant Media Group, which included several cable staples such as MSNBC, CNBC, USA Network, and Oxygen.
Wolfe analyst Peter Supino initiated coverage on Versant with a buy rating and a price target of $52, representing potential upside of 58% compared to the stock's closing price on Wednesday. The analyst cited a solid free cash flow margin and its "blue chip" brands as evidence.
The parallel to the proposed Discovery Global spin-off is notable and suggests that previous estimates of a value of $4 per share may be conservative. This development could influence Warner Bros. shareholders who may have been uncertain about accepting Netflix's offer.