Amir Khamidullin

NFLX will buy WBD for $72B + debt of about $10B. S(WBD) = $63B < $72B, reflecting the uncertainty about the deal going through given the antitrust concerns. NFLX will buy WBD’s studios and streaming assets, with which it has synergy. Under the deal with Netflix, the per-share offer is $27.75: $23.25 in cash and $4.50 in stock. According to Seeking Alpha, PSKY was willing to offer up to $30/share. It is unclear whether NFLX stock part is large enough to exceed PSKY $30/share offer (NFLX is only acquiring for part of WBD). Both NFLX and PSKY agreed to provide reverse termination fee of about $5-6 billion.

NFLX will finance acquisition through $59 billion debt issuance. Its bonds have A3 debt grade by Moody’s Ratings and A by S&P Global Ratings.  WBD bonds were graded as junk with BB grade. NFLX debt at the moment is 17.08B. The new debt issuance to acquire WBD will bring debt to the total value of about 76B. There is a probability that NFLX’s bond rating may be downgraded by notch. WBD, on the other hand, could see its credit profile improve, as being acquired by a stronger, investment-grade buyer usually reduces perceived default risk.

I fear that antitrust might be a huge issue for NFLX. Multiple analysts expressed their concerns regarding this. If they are right, then antitrust scrutiny might last for a long time. My take is that even if NFLX offer is greater in value now, antitrust hurdles will severely deteriorate value of the deal and synergies. However, it is hard to predict when politics is involved.

Somewhat similar to the recent bidding war with Pfizer, Novo, and Metsera, having the highest offer does not guarantee that Netflix will ultimately become the acquirer.