Why Netflix Stock Dropped Today
Key Points
Paramount Skydance is making a hostile bid for Warner Bros Discovery.
Investors are worried a bidding war might erupt among the streaming giants.
Shares of Netflix (NASDAQ: NFLX) fell more than 3% on Monday after Paramount Skydance (NASDAQ: PSKY) intensified its pursuit of Warner Bros Discovery (NASDAQ: WBD).
Image source: Netflix.
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Paramount won't go down without a fight
On Friday, Netflix announced it had struck a deal to acquire Warner Bros Discovery's film and television studios, as well as its popular HBO Max streaming service, for $82.7 billion, or $27.75 per share, in cash and stock.
Paramount responded on Monday by launching an all-cash tender offer for the entirety of Warner Bros Discovery's assets, including the cable networks the media conglomerate plans to spin off, for $108.4 billion, or $30.00 per share.
Paramount CEO David Ellison noted that Netflix's proposal exposed Warner Bros Discovery's shareholders to greater risks, including the unknown value investors would assign to the planned spinoff of the company's cable networks. Ellison also argued that regulators would be less likely to approve a combination with Netflix, due to its higher market share within the streaming industry.
"Our public offer, which is on the same terms we provided to the Warner Bros Discovery board of directors in private, provides superior value, and a more certain and quicker path to completion," Ellison said.
Netflix investors don't want a bidding war
Paramount's bid could make it more difficult for Netflix to obtain the necessary approvals from Warner Bros Discovery's shareholders to complete its acquisition. That, in turn, could force Netflix to increase the size of its offer.
While that might be great news for Warner Bros Discovery's stock owners, it's a far less attractive option for Netflix's investors, many of whom are already weary of the sizable costs associated with a potential deal. In turn, some Netflix shareholders decided to sell their stock today rather than wait around and watch this acquisition battle play out.
Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Warner Bros. Discovery. The Motley Fool has a disclosure policy.