Warner Bros. (WBD.US) options trading “speculates on the short term”: Paramount Tianmu (PSKY.US) launches hostile takeover, adding variables to the prospects of merging with Netflix

The Zhitong Finance App learned that options trading for Warner Bros. shares ushered in the second busiest day in history after Paramount Tianmu (PSKY.US) announced on Monday that it had launched a hostile takeover of Warner Bros. Discovery Channel (WBD.US) at a cash price of $30 per share. One clear sign, however, is that traders are not betting on the company's long-term prospects.

According to the announcement, Paramount's bid corresponds to a corporate value of 108.4 billion US dollars. Unless the takeover offer is extended, existing shareholders will need to decide whether to hand over their shares before January 8 next year. And just last Friday, Netflix (NFLX.US) announced that it would buy Warner Bros. at a price of $27.75 per share (about $82.7 billion in total corporate value), including its film and television production division, HBO Max, and HBO. Netflix said it will maintain Warner Bros.'s current operating model; the total equity value of the deal is approximately $72 billion.

Paramount Sky Dance was the first to throw olive branches at Warner Bros. Exploration. Paramount Tianwu had previously offered a purchase offer of about $60 billion, but in October it was rejected by the Warner Bros. Discovery Board, which then initiated the formal sale process. Paramount Tianwu plans to buy all of Warner Bros. Exploration's assets. The price was gradually raised from the initial price of about $20 to $23.5 per share. The latest acquisition plan was 24 US dollars per share, 80% cash plus 20% stock, but it was rejected by Warner Bros. Exploration on the grounds that it “seriously undervalues the company.”

However, in the latest offer, due to the different transaction structure, Paramount insisted that its offer was better than Netflix, so it directly proposed an acquisition to Warner shareholders. Netflix has no intention of buying Warner Bros. Discovery's TV network businesses, including CNN, TNT Sports, Discovery Channel, etc. Therefore, Warner Bros. Explore will advance the split first. Paramount, on the other hand, said that the plan to buy all liquid shares would provide shareholders with an additional 18 billion US dollars in cash compared to the Netflix plan.

People familiar with the matter said that Warner Bros. internally believes that Netflix's price is actually worth 31-32 US dollars per share because shareholders will continue to hold shares in the two companies after the transaction is split. The reason why the Warner Bros. board of directors recommended a deal with Netflix instead of accepting Paramount's offer was based on a lack of confidence in the future of the cable network business — a business valuation that lacked business fundamentals and was given a high level of leverage, thus burdening the company.

There are signs that options traders lack confidence in who will ultimately win this battle over the future of Hollywood. According to data collected by the agency, up to now, only a small number of put options with a price of $27 due in January 2027 have been successfully traded, while contracts expiring this month or next are worth millions of dollars. The busiest day for Warner Bros. options trading dates back to September of last year.

According to options data, the overall options trading volume on Monday was almost 200% higher than the 20-day average, reaching over 2 million transactions. Trading activity appears to be driven by a strong retail trade flow, while bulk transaction data shows that there are only a few large institutional transactions.

One of the institutional deals involved a combination of call options that would benefit if Warner Bros. shares remained above $24 and below $28 until January 16. The trade closed up 4.4% at $27.23 on Monday.

Whoever eventually succeeds in acquiring Warner Bros. will face a series of antitrust hurdles. US President Trump, Senator Elizabeth Warren, and the American Screenwriters Union have all raised potential antitrust concerns about the acquisition. Trump raised potential antitrust concerns about Netflix's planned acquisition of Warner Bros., pointing out that the combined entity's market share could be problematic. Warren, on the other hand, called Paramount's move a “level 5 antitrust alert.”