A Streaming Squabble and a Wall Street Folly

Now, gather ’round, and let me tell you a tale of ambition, money, and a heap of trouble brewing in that picture-show business. It seems Netflix, a company that started by mailing folks DVDs – a quaint notion, that – has taken a fancy to Warner Bros. Discovery. A proper swallowing-up, they intended, but it appears another critter has wandered into the briar patch. Paramount Skydance, they’re called, and they’ve put a bigger price on the table, as if buying up Hollywood is some sort of prize hog competition.

Warner Bros., naturally, is playing coy, saying this new offer “could reasonably be expected” to be better. A polite way of saying they’re holding out for the highest bidder, like a farmer waiting for the best price at market. Netflix gave ’em a week to consider, a courtesy, mind you, and now Paramount’s laid down a final offer. Which leaves Netflix in a bit of a pickle. Do they raise the stakes, and risk a bidding war that’ll leave ’em poorer than a church mouse? Or do they simply tip their hat and walk away? The shareholders, bless their optimistic hearts, are betting on the latter, and the stock’s taken a bit of a jump, as if to say, “Good riddance to that expensive notion!”

The Odds, Such as They Are

From the moment Paramount entered the fray, the chances of Netflix getting their way dwindled faster than a snowball in July. Raising the price now would be like throwing good money after bad, and Netflix, for all its streaming prowess, has a history of walking away from deals that smell too strongly of extravagance. A sensible habit, if you ask me, though Wall Street rarely rewards such prudence.

Mergers and acquisitions, you see, are a complicated business, full of promises and rarely delivering on ’em. History’s littered with corporate marriages that ended in divorce, leaving both parties bruised and considerably lighter in the purse. Old Professor Damodaran, a man who knows a thing or two about figures, says acquisitions are the most value-destroying thing a company can do. And he’s likely right. Especially when folks get their dander up and start a bidding war.

Now, there were these two professors, Gu and Lev, who studied 40,000 of these deals over a long stretch of years. They found that 70 to 75 percent of ’em failed. Failed, mind you! And the bigger the deal, the more debt involved, the worse the chances. This Warner Bros. deal has both those strikes against it, no matter who ends up holding the bag. It’s like building a castle on quicksand, I tell ya.

Professor Gu, a shrewd fellow, put it plainly: a deal of this “humongous size” will be a “major challenge” for whoever acquires it. And he added, with a knowing wink, that while success is uncertain, debt service is a certainty. A truth that’s often lost in the excitement of a big deal.

And as if all that weren’t enough, the Department of Justice is poking around, sniffing for antitrust violations. Seems they’re worried Netflix getting its hands on Warner Bros. might give ’em too much power. A perfectly reasonable concern, though Washington rarely acts on reason, does it? They’ve been asking folks in Hollywood for their opinions, and I suspect they’ll find plenty of ’em, mostly complaints about who gets the biggest trailer.

The stock, you see, had been slumping since this whole affair began, losing a good 24 percent of its value. But news of Paramount’s higher bid sent it soaring, up over 8 percent. Folks are cheering, naturally, but I suspect they’re cheering a reprieve from a bad investment, not a stroke of genius.

Given all the challenges, the hostile takeover bid, and the revised offer, it’s likely best for Netflix to simply walk away. The prediction markets seem to agree, giving Paramount a 49 percent chance of closing the deal, compared to 37 percent for Netflix. A sensible outcome, if you ask me.

And while the uncertainty has weighed on the stock, it’s created an opportunity for investors. At 32 times earnings, the valuation has fallen to a near three-year low, while the business prospects remain robust. A rare combination, indeed.

That’s why Netflix shareholders are cheering the higher bid from Paramount. They’re not celebrating a victory, mind you, but a fortunate escape. A tale of ambition, money, and a bit of common sense, if you please. And that, my friends, is a rare thing on Wall Street.

2026-02-25 21:33

The Odds, Such as They Are

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