Why Netflix's Hybrid Offer Poses a Better Long-Term Value Proposition for Warner Bros' Shareholders

The ongoing battle for Warner Bros. Discovery (WBD) between Netflix and Paramount Skydance has crystallized into a pivotal moment for the entertainment industry. While Paramount's all-cash bid of $30 per share ($108.4 billion) appears more generous on the surface, a deeper analysis of financial stability, strategic alignment, and long-term value creation reveals why Netflix's hybrid offer-valued at $27.75 per share ($82.7 billion enterprise value)-is a superior proposition for WBD shareholders. This conclusion is rooted in the structural advantages of Netflix's deal, the risks inherent in Paramount's financing model, and the strategic synergies that position the combined entity for sustained growth.

Financial Stability and Certainty

Paramount's all-cash offer, while higher per share, relies on a precarious financing structure. The bid is backed by $41 billion in equity from the Ellison family and RedBird Capital, alongside according to financial reports $54 billion in debt from institutions like Bank of America and Citi. However, WBD's board has criticized this arrangement, noting that the equity backing includes an "unknown and opaque revocable trust". This lack of transparency raises concerns about the reliability of funding, particularly in a volatile market. In contrast, Netflix's hybrid offer-$23.25 in cash and $4.50 in stock per share-leverages the financial strength of a company with a $400 billion market cap. The stock component includes a collar mechanism, ensuring WBD shareholders receive at least $4.50 in Netflix equity, regardless of short-term stock price fluctuations. This structure mitigates downside risk while aligning incentives for long-term value creation.

Long-Term Value Creation and Strategic Synergy

Netflix's deal is not merely a financial transaction but a strategic merger of two industry titans. By acquiring WBD's streaming and studio assets-including HBO, HBO Max, and a vast content library-Netflix gains access to premium intellectual property. This synergy is critical in an era where content differentiation drives subscriber growth. Analysts project that the combined entity could become earnings-accretive within two years, leveraging Netflix's global distribution network to monetize WBD's catalog more effectively.

Paramount's bid, while offering immediate liquidity, overlooks the long-term potential of WBD's streaming assets. Its all-cash structure excludes the spin-off of WBD's Global Networks division, which is expected to become a standalone public company by Q3 2026. If the cable assets are undervalued, as some analysts suggest at $1–$4 per share-Paramount's offer could underprice WBD's future upside. Conversely, Netflix's hybrid structure retains exposure to Discovery Global's potential, adding a layer of value that Paramount's all-cash approach lacks.

Regulatory and Market Risks

Paramount's bid is touted as a "faster and simpler" alternative, but regulatory hurdles remain. The European Union and U.S. antitrust authorities are likely to scrutinize Netflix's expanded dominance, as the combined entity would control 43% of global SVOD subscribers. However, WBD's board has expressed confidence in navigating these challenges, citing Netflix's established market position and the pro-competitive benefits of a unified streaming giant. Paramount's bid, while potentially less contentious, faces its own risks: its high leverage ratio could strain its balance sheet, limiting future investment in content or innovation.

Market Sentiment and Shareholder Confidence

Market reactions underscore the uncertainty surrounding these bids. While Paramount's stock rose 9% following its announcement, WBD's shares gained only 4.4%, reflecting investor skepticism about the bid's viability. Morningstar analysts estimate a 50/50 chance of Paramount's success, compared to less than 50% for Netflix's deal. This suggests that the market perceives Netflix's hybrid structure as more robust, despite its lower per-share price.

Conclusion

In evaluating the strategic and financial implications of WBD's choice, Netflix's hybrid offer emerges as the superior long-term value proposition. Its financial structure provides stability and downside protection, its strategic alignment with global streaming trends enhances growth potential, and its regulatory path, while challenging, is more navigable than Paramount's debt-laden model. While Paramount's all-cash bid offers immediate liquidity, it fails to account for the dynamic value of WBD's streaming assets and the long-term risks of overleveraging. For WBD shareholders, the decision to prioritize Netflix's offer is not merely a financial calculation-it is a bet on the future of entertainment.