A (premium) $WBD $PSKY $NFLX bidding war
TL;DR: WBD (disclosure: long) is in a bidding war. Bidding wars are great (at least for investors), and I think we’ve got another round of bids here and the market is way, way underpricing that optionality in WBD.
Last month, I posted “Missing a bidding war: a mea culpa on Metsera”. The premise was simple: it happens rarely, but every now and then there will be a merger where a company decides to merge with one strategic buyer despite having a higher bid from another strategic. The seller can have endless reasons for choosing one buyer over another (anti-trust, financing, deal certainty, etc.), but whatever the reason they decided to go with a lower priced bid.
When those situations happen, the seller is an almost instant buy from an event angle. Why? It creates an incredible “no lose” set up. Worst case scenario, the current deal goes through1, and you basically get a normal merger arb. Best case scenario, the spurned buyer with the higher bid comes over the top, and maybe you end up with a bidding war.
So it’s an incredible set up…. but it’s a rare one. I could only find a handful of examples over the past 10-15 years, leading me to suggest “you can expect to see one of these set ups every 2-3 years.”
The market gods tend to laugh at bold proclamations and predictions; we’re naturally seeing the set up again less than two months after that write up /me claiming we only see them every couple of years!
On Friday, Warner Brothers (WBD, disclosure: long) announced a deal to be acquired by Netflix. Before the ink on that deal was signed, you started hearing rumblings about Paramount’s “next move”.
Sure enough, on Monday, Paramount launched a hostile offer for WBD at $30/share.
As I’ll detail, I think we’re firmly in the “strategic bidding war” playbook, and I think WBD is an excellent risk/reward from here. I expect: