Comcast’s spinoff of its cable assets is flopping, raising questions about the overall value of streaming giant Netflix’s “winning” bid for Warner Bros. Discovery, On The Money has learned.
The flailing stock price for the media company known as Versant, with cable assets including CNBC, MS NOW (formerly MSNBC) and E!, is adding credibility to arguments being made by rival Paramount Skydance that shareholders should reject WBD’s decision to select Netflix as winner of the months-long bidding war and switch sides to support its own $78 billion, $30-a-share, all-cash offer for the media conglomerate.
That’s because a key aspect of the Netflix deal is the sale of WBD’s own cable assets – CNN, TNT and Discovery – on the bet that doing so would push the overall price for WBD’s studio and streaming service to $31.75 per share. Netflix is offering WBD $27.75 cash and stock for just WBD’s cable and streaming properties, relying on besting Paramount Skydance, with investors pocketing an additional $3 in the cable spinoff.
But the lackluster rollout of Comcast’s spinoff is casting doubt on the math behind those numbers. Versant stock tanked 22% in the two days since it began trading on the Nasdaq. Some investors are beginning to worry that the same industry pressures leading to Versant’s trading woes will plague the value of the Netflix bid.
“This is everything we’ve been arguing and we believe investors will agree,” said a banker working closely with Paramount Skydance.
Famed value investor Mario Gabelli, who owns shares of WBD, said the decline in Versant shares underscores the superior nature of Paramount’s all-cash offer. While Versant shares may recover, he believes the “complicated nature” of the Netflix bid that relies on the equity value of the cable spinoff plus stock in Netflix makes it inferior to the Paramount bid.
“Netflix has the burden to bump up the cash to simplify its offer,” Gabelli said. “As they say, cash is king.”
Reps for Paramount and WBD had no comment.
The trading of Versant has become a key focal point of the takeover battle for Warner Bros. Discovery, known as WBD, the media conglomerate that owns the Warner studio, HBO Max streaming service, plus cable properties like CNN, TNT and Discovery Network.
Some investors believe – and people at Paramount Skydance are arguing – that Versant’s disappointing trading means the WBD cable spinoff won’t trade much higher than $1 a share. They cite audience declines due to cord cutting and high levels of debt bogging down the WBD spinoff – much higher than what appears on the Versant balance sheet.
The questions over the valuation of WBD’s cable-asset spinoff – known as the equity stub – come as WBD’s board is expected on Wednesday to respond to Paramount’s latest sweetened offer for the company.
After losing the bidding war to Netflix, Paramount, an upstart media company run by independent film producer David Ellison and RedBird Capital, mounted a hostile bid, appealing to shareholders that their all-cash offer is far better than Netflix’s. That also involved cash, but included stock in Netflix, too – and those shares have declined by more than $100 billion in market value since the streaming giant began chasing WBD.
Now questions involving WBD’s cable spinoff are casting further doubt on the Netflix valuation. Nearly two weeks ago, Paramount Skydance told WBD that Larry Ellison – Paramount CEO David Ellison’s mega-billionaire dad, who’s been backing Paramount – would personally guarantee the $78 billion bid and meet other conditions. Those include paying a breakup fee for WBD to walk away from Netflix.
Paramount expects to be rejected once again on Wednesday, when the deadline to answer their latest offer expires, said people close to the company.
One clear winner in the drama has been WBD shareholders. David Zaslav, the company’s wily CEO, has pushed his stock up nearly 133% during the bidding war, and is said to be looking for even more money. Media industry sources say Zas, as he is known to insiders, wants the Ellisons to increase their price to as high as $34 a share, valuing their bid for the entire company at above $88 billion.
But people at Paramount Skydance, while eying a higher price, are playing a longer game – particularly now as investors are bailing on the Versant cable spinoff. As The Post has reported, Paramount is considering something known internally as “DefCon1.” That could entail suing WBD for running a bidding process that favored Netflix over what they believe is their superior bid, because of the friendship between Zas and Netflix CEO Ted Sarandos.
