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📌 Main takeaway:
Key takeaways
- Netflix shares fell on Thursday, a day after closing at a seven-month low, as investors pondered the possibility of it beating Paramount Skydance in a bidding war over rival Warner Bros. Studios. Discovery.
- Netflix is seen as the preferred buyer, but federal officials have reportedly raised antitrust concerns.
Netflix may be about to make a big purchase. Wall Street is not happy about that.
The streaming giant is said to be the favorite to acquire rival Warner Bros. Discovery (WBD). That didn’t help the stock: Netflix (NFLX) shares fell more than 1% in recent trading, after falling to their lowest closing level in seven months on Wednesday.
Netflix is competing with streaming giants Comcast (CMCSA) and Paramount Skydance (PSKY) to take over streaming platform owner HBO Max and a slew of intellectual property that includes Harry Potter, Game of Thrones and DC Comics.
“The market is witnessing the end of the era of cable TV,” Bank of America analysts wrote last month, describing Warner Bros. as “another domino in a potential cascade of transactions that redefines the competitive fabric of the media and entertainment industry.”
Why is this important?
The acquiring company will acquire Warner Bros. Discovery owns some of the most valuable intellectual property in the world, including the world of Harry Potter. It will also likely combine two of America’s largest streaming platforms, further strengthening an industry already dominated by a handful of companies.
Netflix and Paramount Skydance are major contenders, but shareholders in both appear to have reservations about the deal. Their shares have fallen by about 6% and 9%, respectively, since submitting their first bids on November 20. Investopedia Comment requested in time for publication.
It’s common for a company’s stock to fall when it makes a large takeover bid, because the buyer usually pays a premium to sweeten the deal. Furthermore, some existing investors may doubt the wisdom of such a tie-up or decide they are not interested in owning the combined company.
But there may be more to Netflix stock’s latest slide. White House officials have reportedly raised antitrust concerns, arguing that the combination of Netflix and HBO Max could give the combined company too much power over the entertainment industry.
President Donald Trump is also looming over the deal. The New York Post recently reported that Netflix’s bid “faces growing opposition from the Trump administration,” citing antitrust concerns.
Trump is also closely linked to Larry Ellison, the father of Paramount Skydance CEO David Ellison. Any ensuing lawsuit could jeopardize the deal, entangle Netflix in a costly legal battle, and amplify government scrutiny of the company.
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