Netflix has officially entered the Upside Down, the dark alternate dimension of its hit series strange things. CEO Ted Sarandos has given a radical turnaround to three decades of building instead of buying and agreeing to pay $83 billion, including debt, for movie studio Warner Bros and rival HBO. The agreement faces difficulties from a political, normative and financial point of view, which puts the giant streaming in a curious defensive position.
The three-way bidding war was full of drama. Netflix emerged victorious this month against David Ellison’s Paramount Skydance, and cable operator Comcast offered Warner Bros. shareholders Discovery (WBD) $23.25 in cash and $4.50 in Netflix stock, subject to fluctuations. Sarandos, known for his candor, uses merger and acquisition clichés such as “one more equals three or four” and the ability to “give the public more than they want” outside of his character to justify the acquisition.
He and co-CEO Greg Peters promise annual savings of $2,000 million to $3,000 million from the deal. Then the prize is in the box. Warner Bros and HBO are expected to generate combined operating revenues of €1,800 million in 2026, according to Visible Alpha. Adding the midpoint of Netflix’s estimated cost reduction range and recording the sum with the standard 21% corporate tax type, the implied ROI is only 4%, we calculate. It would take more than double the synergistic enhancement to achieve a respectable 8% yield.
The decision also sees Netflix’s emergence into uncharted territory. There will likely be severe regulatory reviews around the world, a risk reflected in the $5.8 billion, or a considerable 7% of the purchase price, that Netflix agrees to pay to WBD if the deal falls through. Politics will also be a factor. Ellison’s priest, Larry, founder of Oracle, has a good relationship with Donald Trump. Additionally, Paramount wanted all of WBD, including the cable networks which would now be split into an independent company, and offered $30 per share, CNBC reported. It will not sit idly by (this time it is launching a hostile takeover bid for 103 billion) and will not harm potentially injured shareholders either.
Since its founding in 1997, Netflix has revolutionized the world creatively. establishment of Hollywood and generated value for shareholders without falling into the same acquisitions to build an empire that conquered the sector. Warner Bros. alone attracts and curses only the Internet pioneer AOL, their titan telecos AT&T and the television conglomerate Discovery. Steve Case, Randall Stephenson and David Zaslav, their respective bosses, took advantage of the opportunities afforded by owning the historic entertainment company, just as Sarandos and Peters do now. The damage that will occur will be nothing original.
The authors are chroniclers of Reuters Latest views. Opinions are suyas. The translation of Carlos Gomez Abajoit is the responsibility of CincoDías
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