Warner Bros. trading suggests market expects sweetened offer

Warner Bros. has not closed higher than $30 a share since the bidding war broke out, likely owing to concerns a Netflix deal would undergo a time-consuming regulatory review and uncertainty over how to value the cable properties

• Warner Bros. shares rise as Paramount may raise its bid above $31
• Netflix deal encounters regulatory issues and cable asset concerns
• Warner Bros. resumes negotiations with Paramount for higher offer

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The latest twist in the drama for control over Warner Bros. has traders betting one of the suitors will sweeten its bid.

The storied Hollywood studio’s shares traded just below $29 a share on Thursday after they briefly pushed past that level earlier this week when Paramount Skydance Corp. indicated it could raise its offer by at least $1 a share to $31. Warner Bros. agreed in December to sell itself to Netflix Inc. for $27.75 a share plus a stake in some spun-off cable TV networks like TNT and CNN.

Warner Bros. has not closed higher than $30 a share since the bidding war broke out, likely owing to concerns a Netflix deal would undergo a time-consuming regulatory review and uncertainty over how to value the cable properties. At the same time, Warner Bros.’s board has repeatedly rebuffed offers from Paramount for $30 a share.

The sales process got a jolt Tuesday when Warner Bros. agreed to reopen negotiations with Paramount after receiving a revised proposal that sweetened some terms. Warner Bros. shares jumped 2.7% on the news, and are now up some 6% from a low hit just two weeks ago, as speculation mounts that the bidding is not done.

“Where it’s trading today versus where was it a couple of days ago is indicating that people think it’s likely there is a bid beyond $30 for the asset,” Matt Osowiecki, a merger arbitrage-focused portfolio manager at Water Island Capital LLC, said Wednesday. “If $30 is the best you would do, the stock would not be trading at $29. It would have to be trading lower, to compensate you for the time value of your money.”

Michael Broudo, an event-driven desk analyst at Oppenheimer & Co., said Paramount raising its bid to $32 per share seems like “a reasonable estimate” based on the language in the company’s press release that its $31 per share offer was not its “best and final.”

Paramount has been trying to buy Warner Bros. since September of last year, an effort that resulted in Warner Bros. formally putting itself up for sale. The company increased its bid several times before ultimately losing to Netflix. Three days later, Paramount mounted a hostile tender offer for Warner Bros. at $30 a share and has twice amended its offer since then, each time addressing some concerns but never raising its price.

Warner Bros. negotiated a waiver with the streaming giant that will allow it to engage with Paramount for seven days until Feb. 23 about the terms of its most recent offer.

“Now that the vote is set and we are getting into the crunch time, we could finally see if Netflix is also willing to go higher,” said Cabot Henderson, an event-driven specialist at JonesTrading. “It is an open question how much wider on perceived regulatory risk a Netflix deal spread would be absent Paramount knocking on the door.”