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Key takeaways
- Netflix on Friday agreed to buy Warner Bros.’ studio and streaming service. Discovery, beating out rivals Paramount Skydance and Comcast.
- Warner Bros. shares rose. Discovery on Friday morning, but it was trading roughly 10% below its $27.75 acquisition price, suggesting some skepticism about the deal on Wall Street.
- Shares of both Paramount and Netflix fell on Friday, as did shares of movie theater chains AMC and Cinemark.
Perhaps one of the most watched bidding wars of the year is over.
Netflix (NFLX) on Friday agreed to buy Warner Bros.’ film studio and streaming service. Discovery (WBD) in a deal valued at approximately $83 billion. The deal is expected to close after Warner Bros. Discovery will spin off its cable division as a separate company in the third quarter of next year. When the project is completed, Warner Bros. shareholders will receive Discovery at $27.75 per share.
Netflix shares opened sharply lower on Friday morning before recouping some of their losses to trade down less than 1%. The acquiring company’s shares often decline on news of the deal, because the acquiring company usually pays a premium.
Why is this important?
The acquiring company’s stock price often falls as investors evaluate the terms of the deal, which typically requires the buyer to pay a premium. When a target company’s shares trade below the offer price, this may reflect concerns that the deal may face regulatory hurdles.
Warner Bros. shares rose. Discovery rose by about 3%, but remained below the acquisition price, suggesting that investors see some risk in the deal falling through. The White House and federal regulators have reportedly expressed opposition to the deal on the grounds that it could make Netflix too dominant in streaming.
Shares of Paramount Skydance (PSKY), Netflix’s biggest competitor in the bidding war, fell 5% on Friday morning. The company, which was formed earlier this year through the merger of Skydance Media and Paramount Global, accused Warner Bros. Discovery conducted an unfair bidding process, according to reports Thursday. Paramount Skydance’s close ties to the White House — the company run by the son of Larry Ellison, the tech mogul and prominent ally of President Donald Trump — could give it an opportunity to block the Netflix deal.
NBC’s parent company Comcast (CMCSA) has also made a bid to buy Warner Bros. Discovery, but has not been seen as a serious contender in recent days. Its shares rose by about 3% in recent trading.
Away from the major parties, shares of AMC Entertainment (AMC) fell about 3% on Friday. As part of the deal, Netflix promised to continue offering theatrical releases of Warner Bros. films. Discovery, although investors in America’s largest movie theater chain may worry that Netflix’s streaming-first DNA may change Warner Bros.’ strategy. Discovery theatrical. Cinemark (CNK) shares fell 7% on Friday.
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