Paramount's Ninth Bid Escalates Warner Bros. Discovery Auction, But Underlying Risks Persist

What happened

Warner Bros. Discovery continues to be targeted in a bidding war, with Paramount updating its offer as it competes against Netflix's agreed deal, according to a new article. This latest move by David Ellison represents his ninth bid, underscoring the prolonged and contentious acquisition process but not eliminating the deep-seated uncertainties. The DeepValue master report highlights that WBD's stock trades at $28.49, slightly above Netflix's $27.75/share deal value, despite junk-rated debt, regulatory headwinds, and political opposition that jeopardize transaction completion. Key risks include a forecasted 20% decline in Global Networks EBITDA and leverage around 4.3x, which could strain the planned spin-off and expose standalone vulnerabilities if deals fail. Thus, while increased bidding may offer temporary price support, the fundamental challenges—such as antitrust scrutiny and deteriorating linear business—remain unaddressed, keeping the equity story highly speculative.

Implication

Investors should view Paramount's aggressive bidding as a catalyst for short-term volatility rather than a solution to WBD's core problems, as regulatory approvals for either Netflix or Paramount face high hurdles from antitrust bodies and political pushback. The DeepValue report stresses that WBD's junk-rated balance sheet and declining linear EBITDA, projected to fall ~20%, create standalone distress risks if transactions are blocked or delayed, potentially driving shares toward the bear-case $18 valuation. Even with Netflix's $5.8 billion reverse break fee, downside protection is limited against a full deal collapse, and the spin-off of debt-laden Global Networks adds execution complexity. Increased auction activity might marginally lift the bull-case scenario to near $31/share, but this offers only ~9% upside from current levels, while downside risks exceed 35%, making the risk-reward skewed negatively. Therefore, maintaining exposure requires accepting merger-arbitrage uncertainty with minimal margin of safety, aligning with the report's 'STRONG SELL' rating to avoid or trim positions above deal value.

Thesis delta

Paramount's updated bid does not fundamentally alter the investment thesis, which remains anchored in the high likelihood of deal delays or failures due to regulatory, political, and credit constraints. It may briefly enhance auction dynamics and bull-case probabilities, but the asymmetric risk-reward—with limited upside and significant downside from WBD's levered, declining standalone business—persists unchanged. Thus, the core recommendation to sell or avoid shares at or above current prices stands firm, as the new bid fails to address the underlying structural weaknesses.