Could Netflix Target Disney Now?

In case you don’t keep up with media, something shocking just happened.

Paramount Skydance suddenly emerged victorious in a hard-fought battle.

The prize was Warner Bros. Discovery, and it was a come-from-behind victory.

Until an eventful February 26^th, Netflix had been the clear-cut leader in the clubhouse.

Now that Netflix has failed in its endeavor, a new question arises.

Could Netflix target Disney now?

As the Media World Turns

So, I’m writing this just a few hours after the WBD news has broken.

Coincidentally, while I was searching for something else, I remembered this article.

I wrote that in December at a time when Netflix appeared likely to win WBD.

The report came out almost incidentally in the wake of the splashier Netflix/WBD news.

Now, history is already repeating itself in the aftermath of a truly bizarre turn of events.

Just as Netflix co-founder Ted Sarandos was meeting with White House officials, the news broke.

WBD had decided that a relatively modest bid increase from Paramount was enough.

The Board of Directors voted in favor of ditching Netflix for Paramount, albeit with a caveat.

Netflix possessed the ability to counter the bid, which they could have easily done.

Many analysts had suggested that Paramount needed to bid at least $32 to win. Some argued $35.

So, when Paramount came in at just $31, the bid…felt pretty light.

Paramount only raised its bid by three percent. If Netflix had done the same, it should have won.

The merger still would have faced regulatory scrutiny, though, which is why Sarandos visited Washington, D.C.

However, as The Wrap reported in its newsletter, “Presumably, those meetings did not go well.”

Sarandos never met with the President of the United States as expected, who hung out with New York mayor Zohran Mamdani instead. The whole sequence of events feels like a Madlib, but here we are. In an instant, it was over.

Netflix had somehow lost, with Paramount snatching defeat from the jaws of victory.

Before you feel too bad for Netflix, let’s discuss what qualifies as a loss for Sarandos, though.

The World of High Finance, Y’All

Paramount’s agreement to take control of Warner Bros. Discovery is far from complete.

However, Sarandos and Netflix have emphatically stated that they’re out and not getting back in.

They saw the writing on the wall that Paramount planned to stretch this out as long as needed.

Meanwhile, the White House appeared to favor Paramount over Netflix as well.

So, Sarandos ostensibly cut his losses, but that’s not what really happened.

As arguably the most brilliant person in the media industry, Sarandos built in a fail-safe.

Should WBD back out of its Netflix agreement, the “winning” bidder would owe Netflix $2.8 billion.

There’s a funny anecdote about this nonsense that I’ll include before we get to Netflix and Disney. Paramount is responsible for paying that $2.8 billion. In addition, Paramount may owe $7 billion.

That’s how much money Paramount will pay WBD should this acquisition fail to complete.

That’s unlikely but far from impossible. California’s attorney general is already threatening to shut it down.

Also, Paramount and WBD are both carrying so much debt that the combined entity will owe almost $58 billion.

There’s a lot that could go wrong here, and anything major would collapse the deal.

Should that happen, Paramount Skydance would wind up paying $9.8 billion NOT to buy WBD.

This seems like a good time to mention that Skydance paid $8 billion to buy Paramount.

Friends, there’s a scenario on the table where the former Skydance spends more not to buy WBD than to buy Paramount.

The machinations of this deal will break your brain if you spend too much time thinking about them.

Then, we have the debate about Netflix’s next move, which raises a vital question.

Could Netflix Target Disney Now?

Netflix just got left high and dry on a $72 billion bid for part, not even all, of WBD.

On top of that, Netflix is getting a check for $2.8 billion for its trouble.

Yes, the media will report that Netflix lost, but it just got paid $2.8 billion for a three-month side quest.

When you and I lose, we typically wind up paying for it. When Netflix loses, someone else pays them billions.

We can also draw two conclusions from everything that just transpired.

The first is that WBD has a market value of $111 billion, the price of Paramount’s winning bid.

Netflix absolutely could have paid that. Sarandos and his team simply chose not to do so.

They recognized that a combination of circumstances worked against their best interests.

Thus, it really did prove to be a side quest, not part of Netflix’s main story.

This seems like a good time to mention that Disney currently has a market cap of about $187 billion.

That number had been $190 billion before its most recent earnings report, so it’s a bit low.

Also, we just watched WBD sell for much higher than its current market valuation, an important distinction.

Still, let’s discuss the second conclusion. Netflix just showed that it really wanted to buy a legacy studio.

WBD only claims a fraction of the content that Disney does, yet it was still appealing to Netflix. Now, Netflix is $2.8 billion richer, and it just got left at the altar by one legacy studio.

Do you know what would turn that disaster into a huge win for Netflix?

The company could feasibly turn around and make a run at Disney at some point.

Wait, Really?

I’m not one for clickbait and would never have brought this up if not for recent events.

According to a Bloomberg report (link to non-paywalled article), Netflix previously considered this move.

Before that, Netflix had evaluated major acquisitions of EA and Fox, one of which Disney now owns.

After that report, the ever-reliable Rick Munarriz at The Motley Fool posted this article.

He anticipated this scenario and idly wondered the same thing we’re debating today.

At the time, he had no reason to think that Netflix would “whiff on Warner Bros.”

The analyst was merely game-planning potential fallback scenarios for Netflix.

Now, here we are. Disney owns Fox’s legacy media assets, the same ones Netflix had desired.

Also, Disney’s own assets are best-in-class. So, it’s fair to wonder whether the temptation remains.

Could Netflix lick its wounds, weigh its options, and make a run at Disney?

As Munarriz stated in December, Disney’s enterprise value is $45 billion higher than its market cap.

Therefore, Netflix would probably be looking at triple the price it offered for WBD to buy Disney.

So, the $2.8 billion Netflix will receive from Paramount wouldn’t go that far in a $200+ billion purchase.

I Think Not, But…

I expect that the media will pick up on this premise soon and start to mention it occasionally.

However, at this moment, I suspect Netflix has lost its taste for protracted M&A negotiations.

Unless a deal for Disney or some other legacy media company came together quickly, I think Sarandos would pass.

I mean, Netflix’s stock plummeted about 30 percent due to the WBD acquisition agreement.

Then, in the hours after its conclusion, Netflix stock soared more than ten percent.

Netflix investors don’t seem to want the company doing anything but Netflix-and-chilling.

After the climactic (?) events of WBD/Paramount/Netflix, nothing would shock me, though.

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