The decision was welcomed by investors as the streaming giant’s shares had fallen more than 18% since the deal with Warner Bros was announced on December 5.The latest step is a “check in the box” for discipline, says Ben Barringer, head of technology research at Quilter Cheviot.
“What you want from a management team is the ability to look at acquisitions, value them, pay what they think is a fair price, but not pay too much.”
Analysts and investors had wondered whether Netflix’s bid was a defensive attempt to block a future competitor or an offensive shift away from the historically disciplined build versus buy approach.
“A positive turn of events in our view, as we believe NFLX’s withdrawal from the race will free the company to refocus on its operations, while its closest competitors struggle with long and distracting regulatory approval and merger integration processes, and with PSKY saddled with significant deal debt,” HSBC analysts said.
Shares of David Ellison-led Paramount, meanwhile, rose 5%.
A partnership with Warner Bros would allow Paramount’s legendary Hollywood studio to leverage Warner’s deep trove of intellectual property — including franchises like “Fantastic Beasts” and “The Matrix” — across film, television and streaming.
“WBD’s largest asset is declining and the company is still in debt from the latest failed merger. But this deal is more about Ellison’s takeover of Hollywood and ego than sound business sense,” said Ross Benes, senior analyst at Emarketer.
For Paramount’s streaming arm, a combination with HBO Max and Discovery+ would reshape its position in a streaming era long dominated by Netflix.
“Paramount has been the laggard in the streaming market and needs Warner Bros’ content and capabilities to catch up. It will take more than Harry Potter for the deal to work its magic and allow Paramount to beat Netflix, Disney and Amazon in the streaming wars,” said Dan Coatsworth, head of markets at AJ Bell.
In the battle for Warner Bros, the Paramount consortium, backed by billionaire Larry Ellison and led by his son, Paramount CEO David Ellison, also increased its termination fee to $7 billion and expanded its financing commitments, including $45.7 billion in equity.
“There is a right price and a wrong price for every acquisition, and the pressure is now on Paramount to prove that the large financial outlay is worth it,” Coatsworth said.
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