Netflix, Paramount shares dive as Wall Street bets on bidding war for Warner Bros. Discovery

Wall Street is betting that a bidding war is brewing for Warner Bros. Discovery – and that, in turn, is slamming the shares of the two media giants that want to buy it, sources told On The Money.

Paramount Skydance is weighing whether to increase its $30-a-share offer as part of its “hostile takeover” strategy, sources close to the company said. That means arguing directly to WBD shareholders that its all-cash bid is better than Netflix’s winning $27.75-a-share cash-and-stock offer that relies on the sale of cable channels like CNN to push it above $30 a share.

Among the takers for Paramount Skydance’s offer was media investor Mario Gabelli, who announced Tuesday he was “highly likely” to tender his WBD shares to the owner of Paramount Studios and CBS.

But to bring more WBD stockholders on board, Wall Street insiders are now betting Paramount Skydance will up the ante. WBD chief David Zaslav has told people if Paramount Skydance can come up with an extra $5 a share, it could upend the sale to Netflix. 

Traders are predicting that, not to be undone, Netflix will be forced to raise its offer for the company. While Paramount’s backer Larry Ellison is worth more than $270 billion, Netflix has a market value of $441 billion, so money shouldn’t be a problem, right? 

Well, it might, for various reasons. As a result, shares of both Paramount and Netflix have taken a hit as traders engage in the practice of “merger arbitrage” – betting on which shares will rise or, in this case, fall more as the firms engage in a costly bidding war for WBD.

The clear winner here has been Zaslav. Shares of his company keep rising –  since announcing the Netflix “win” they’re up nearly 17% above their already deal-pumped levels, trading at above $28 and seemingly headed above $30 if the bidding battle the arbs are predicting takes shape.

“After Paramount announced the hostile [takeover bid], I hear it’s almost guaranteed that Netflix will up its offer to stay in the game,” said one media company executive who deals with Wall Street bankers and traders on a regular basis.

Netflix and Paramount reps declined to comment.

The bidding-war trading thesis emerged Monday, after Paramount decided to appeal directly to WBD shareholders. As most hostile bids for any company include “sweeteners,” traders believe Paramount will increase its offer, forcing Netflix to do the same.

The first signs could be seen in so-called betting markets – places like Polymarket that are closely watched by the trading community. After the hostile-takeover announcement, Paramount’s odds of winning picked up dramatically, rising to 45% compared to 35% for Netflix.

Normally that would lead to shares of Netflix spiking, since the bet would be on it bowing out and not paying up for an asset that many investors believe isn’t of existential importance to the company’s success. 

But just the opposite happened. Netflix stock lost more than 6% since it won the bidding war last Friday; losses cascaded Monday when the Paramount Skydance hostile-takeover plan was announced.  

In recent days, Paramount Skydance’s stock has also taken a hit, dropping a less-noticeable 1.4% largely because Larry Ellison’s wealth is backstopping the company’s bid and is seen as a cheaper form of financing than what Netflix would have to put together.

But even with his father’s money, David Ellison’s bidding war will be expensive for an asset Paramount Skydance desperately needs to compete – Paramount itself contains cable channels that have been ravaged by cord cutting, along with a money-losing streaming service.

David Ellison would also have to ramp up his borrowing or find new equity partners unless his father unloads his holdings of Oracle, which over the years he has been loath to do except for estate-planning purposes, Wall Street and media industry executives say.

Of course, other factors are weighing on the Wall Street betting frenzy. Netflix is bidding just on WBD’s streaming service, HBO Max, and Warner studio. The Ellisons want all of WBD and are willing to pay cash, while Netflix relies on some interesting bells and whistles – and regulatory antitrust concerns abound. 

Paramount Skydance is seen as holding the edge in this battle because Larry Ellison is close friends with Trump and there is less overlap between its operations and WBD’s – though they would be combining two movie studios. On the other hand, if the Netflix bid prevails, it would control 30% of the streaming market, something that has already raised concern within the Trump administration.

The betting on where Trump himself comes out on all this murky. Yes, he likes Larry Ellison, but he’s developed a friendship with Netflix CEO Ted Sarandos in recent weeks, as The Post has reported. The president has said the Netflix-WBD tie up “could be a problem,” but then later lashed out at Paramount Skydance over a “60 Minutes” interview of Rep. Marjorie Taylor Green (R-Ga.), a MAGA apostate.

On top of that, sources tell On The Money that Trump has yet to discuss his views on the deal with the Justice Department antitrust division despite some of the DOJ’s misgivings, particularly about Netflix gaining so much market share. Paramount Skydance, meanwhile, will face its own antitrust review if it wins the bidding contest.

Lots of stuff for the arbs to chew on, which is exactly how they like it.