When AT&T acquired Warner Bros., the stock was trading around $107.50 per share.
After years of poor management and the structural decline of the traditional TV, cable, and movie distribution markets, the stock eventually fell to just under $10 a share.
With essentially no competing bidders, Paramount Global was initially willing to pay $27.75 per share for what many investors viewed as a declining asset. When Netflix entered the picture, Paramount raised its offer to $31 per share.
To create the political cover needed to pursue the deal, Paramount reportedly made deep cuts at CBS News and programs like 60 Minutes. Several prominent figures left, including Anderson Cooper. There are even rumors that 60 Minutes could replace Cooper with Joe Rogan. The same leadership group is also overseeing CNN, and it would not be surprising if they eventually attempt to divest CNN as well, given that it is another struggling asset that frequently generates negative headlines.
The acquisition itself was financed with more than $30 billion in debt, and the company also had to pay Netflix a $2.8 billion breakup fee.
Paramount’s long-term credit rating fell from BB+ to BBB−—effectively pushing it toward junk-bond territory—and its stock has dropped about 35% since the merger. The company is now planning significant layoffs.
I took a loss on Netflix because I didn’t want my capital tied up while the company dealt with the legal/merger details with a company like Warner Bros. a property that has historically destroyed value in past mergers involving companies such as AT&T and AOL Time Warner.
After walking away from the deal, Netflix’s stock recovered roughly 20%, bringing it back to about 10% below its pre-merger level.
If I had known Netflix was going to get anywhere near a declining asset like Warner Bros., I never would have bought the stock. However, if Netflix were to pursue assets like Disney+/Hulu instead, the competitive field would likely be much smaller, and they might be able to acquire them at a discount.
This is what happens when you give a billionaire nepobaby a credit card. At least he'll get his invite to the Oscars.