Paramount sweetens hostile bid to stop Netflix-Warner Bros. deal

Paramount escalated its hostile bid to block Warner Bros. Discovery’s $83 billion sale of studios and streaming assets to Netflix by offering to pay WBD shareholders about $650 million for each quarter the Netflix deal is not closed beginning in 2027 and pledging to promptly cover the $2.8 billion breakup fee, while keeping its $30-per-share all-cash takeover offer intact. Netflix has mounted a PR counteroffensive — warning that Paramount’s cited $6 billion of synergies imply job cuts — and WBD says over 93% of shareholders are rejecting Paramount’s plan; a special shareholder vote is expected in late March or early April, leaving significant regulatory, proxy and execution risk for investors.

Analysis

Market structure: Paramount's $650m/quarter kicker starting 2027 and willingness to pay Netflix's $2.8bn break fee materially raises the cost of a drawn-out closing and improves downside protection for WBD holders, but Paramount did not raise its $30/sh bid, keeping upside capped. If Netflix's $83bn studios/streaming purchase closes, Netflix gains scale and content control, likely pressuring smaller streamers' pricing power; if blocked, WBD equity dislocation and spin-off execution risk will create winners among opportunistic buyers and losers among leveraged creditors. Cross-assets: expect WBD/NFLX CDS spreads and high-yield bonds to reprice on volatility; options IV should remain elevated into the shareholder vote and any DOJ action, while the USD impact will be negligible outside tech/large-cap flows.

Risk assessment: Tail risks include a DOJ antitrust suit that blocks the Netflix deal (high impact, low probability), Paramount winning a proxy contest, or a bidding war driving price >10-20% above $30/sh. Immediate (days) risk is heightened IV and directional whipsaw into the late-March/early-April shareholder vote; short-term (weeks) hinges on DOJ signals; long-term (quarters) depends on integration execution and Discovery Global spin-off value realization. Hidden dependencies: Netflix financing certainty, WBD covenant/debt maturities, and activist shareholder coordination — any of which can flip probabilities rapidly.

Trade implications: Tactical: buy WBD volatility around the shareholder vote and regulatory window (see trades below). Relative-value: short NFLX vs long WBD if you believe regulatory probability >30%; hedged option structures limit downside. Sector: trim broader media longs with concentrated M&A exposure and increase cash/volatility exposure into April; reallocate 1-3% into event-driven strategies.

Contrarian angles: The market consensus assumes Netflix closes; that understates DOJ and shareholder coordination risk — implied vol for NFLX appears too low vs. regulatory tail. Historical parallels (AT&T/Time Warner, Disney/Fox) show regulatory outcomes can flip value by >20% and create cheap credit opportunities; unintended consequence — protracted fights can impair WBD operating cash flow and reduce ultimate takeover premiums, making medium-term distressed debt and long-dated calls attractive.

Key Decisions for Investors

• Establish a 1-2% portfolio notional long volatility position in WBD using May 2026 ATM straddles (expiry covering late-March/early-April vote window) sized so max loss = 0.5% portfolio; objective: capture move from vote/regulatory binary.
• Open a defined-risk bearish hedge on NFLX: buy 3-month 20%-OTM put spreads (lengthen to 4-5 months if cost-effective) sized 1-2% portfolio to hedge regulatory-block tail risk; roll or widen if DOJ signals formal inquiry within 30-60 days.
• Implement a pair trade: long WBD equity (1-2% net exposure) and short NFLX equity (1-1.5%), hedge beta with market index futures; trim/flip within 3 trading days after shareholder vote or immediate DOJ filing.
• If DOJ files suit or shareholder vote favors Paramount (>50% support for Paramount scheme), within 48 hours: increase NFLX short exposure by additional 1-2% (or buy deeper ITM puts) and reduce WBD long exposure to zero; alternatively, if vote rejects Paramount and no DOJ action, take 2-3% long WBD for a potential arbitrage to break-up value realization.