Could Netflix Throw More Cash Into Its Warner Bros. Deal? Investors Are Wondering

Key Takeaways

• Streaming giant Netflix's new reported offer, said to be all cash instead of cash and stock, would appear to diminish the main theoretical strength of its rival's.
• Details of Netflix's potential offer landed after Paramount Skydance ratcheted up its hostile bid for Warner.

Cash is king. Investors tracking the streaming-media M&A saga of the moment may need to decide whose is more regal.

Streaming giant Netflix (NFLX) is reportedly considering an all-cash offer to acquire Warner Brothers Discovery (WBD), a change to its previous cash-and-stock bid that would appear to take a direct shot at Paramount Skydance's (PSKY) rival proposal.

News of Netflix's possible change dropped after Paramount Skydance ratcheted up its hostile bid for Warner Bros. on Monday; the latest twist would appear to simplify the terms for shareholders weighing the two offers, though it was unclear exactly how much Netflix might offer in a cash-only deal, which hasn't been announced. Neither Paramount nor Netflix responded to Investopedia's query in time for publication.

Why This Matters to Investors

Industry consolidation has historically led to higher prices—not great news for consumers who have been paying more and more for streaming services in recent years. That's one of the concerns some have about what might happen if Warner Bros. Discovery gets pulled into another company.

Netflix's stock climbed after Bloomberg first reported that the company was working on revising the terms of its acquisition late Tuesday. Its stock is down more than 1% so far today and is at its lowest price since it and Warner announced their agreement in early December. Paramount's stock, down just under 1%, is also near lows struck after the company muscled in.

To recap: Shortly after Netflix announced its cash-and-stock deal to purchase Warner Bros. in December, Paramount Skydance made its own offer public, saying its all-cash bid was better than the streaming company's cash-and-stock one. It has since been campaigning to bring shareholders to its side, and amended its proposal to address some of the reasons Warner outlined for rejecting it in private negotiations.

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On Monday, Paramount ratcheted up the pressure, saying it intended to nominate directors for election at Warner Bros.' annual meeting and that it would solicit votes against the Netflix agreement. The company also sued Warner Bros. that same day for more information about its deal with Netflix.

If Netflix's all-cash offer materializes, Paramount may have to come up with a different argument for why shareholders should choose its proposal, or lean on its other points—mainly, it argues, a faster timeline and greater certainty of closing.

In the meantime, some investors are happy with the possibility of more cash on the table, as well as more competition for Warner Bros. “We’re pleased with the bidding war here,” Oakmark fund manager Bill Nygren told CNBC on Wednesday.

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