DOJ Theater Probe Heightens Antitrust Uncertainty in WBD-Netflix Deal

What happened

The U.S. Department of Justice has summoned major theater chains to discuss the potential impact of Warner Bros Discovery's sale, signaling a deeper antitrust review into how the transaction might affect theatrical distribution markets. This probe follows the DOJ's Second Request issued in January 2026, already a known catalyst in the Netflix all-cash $27.75/share agreement timeline. It exposes regulatory concerns beyond streaming competition, specifically targeting vertical integration risks in content distribution. The DeepValue report emphasizes that antitrust delays are a key downside risk, with the bear case implying a $22 value if the vote slips past April 2026. This development reinforces that regulatory hurdles are materializing, adding pressure to an already fragile deal process dependent on shareholder approval and financing stability.

Implication

The DOJ's focus on theaters suggests a comprehensive antitrust review likely to extend beyond the base-case 12-18 month close window, increasing the probability of timeline slippage. This delays critical milestones like the shareholder vote expected by April 2026, raising the risk of adjournment and activist opposition as highlighted in the report. Extended uncertainty strains WBD's capital structure, particularly the Bridge Loan Facility due in 2026, which management warned may not refinance favorably. Alternative bids from Paramount could see increased leverage but face similar regulatory hurdles, complicating the competitive landscape. Ultimately, with the stock trading above the deal price, the lack of a margin of safety becomes more pronounced, urging investors to wait for a discount or clearer regulatory progress before committing capital.

Thesis delta

The DOJ theater probe does not alter the core event-driven thesis but significantly elevates the downside risks already identified. It confirms that antitrust scrutiny is broadening beyond horizontal concerns, making timeline delays more probable and strengthening the bear case where deal slippage pressures financing and lowers implied value. This shift underscores the need for heightened vigilance on regulatory datapoints and reinforces the 'WAIT' rating until a discount to $27.75 or concrete close-clock milestones emerge.