"The Pulse" -- #135 HBO/Warner Bros. Acquisition Saga

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Market Update:

The HBO/Warner Bros Acquisition Saga

Recently, Netflix announced it was buying a big part of Warner Bros. Discovery, including HBO, HBO Max, and the Warner Bros. film and TV studios, for about $82.7 billion. It is one of the largest entertainment deals in years and shows just how competitive streaming has become. With all this going on, it’s crazy to think that not too long ago we were all watching cable television.

Warner’s legacy cable networks are not included. They will be spun off into a separate company called Discovery Global, so Netflix does not get stuck with slower-growth cable assets.

From a financing perspective, this deal is massive. Netflix is funding the cash portion mainly through a $59 billion bridge loan from major banks. Since the deal was announced, Netflix has refinanced part of that loan into longer-term debt, including a revolving credit facility and delayed-draw term loans.

About $34 billion of the original bridge still needs to be syndicated to institutional investors. That is a ton of debt, but Netflix’s steady cash flow and pricing power make lenders comfortable taking on the risk.

Netflix also has some heavy-hitter advisors and banks behind it. Moelis & Company is the lead financial advisor, helping figure out valuation, deal structure, and financing strategy. Wells Fargo is both advising Netflix and providing debt financing, while other big banks are involved in underwriting and refinancing.

Not long after Netflix announced its deal, Paramount Skydance made a hostile all-cash bid for all of Warner Bros. Discovery. They valued the company at roughly $108.4 billion, or about $30 per share, which is higher than Netflix’s $27.75 offer.

Cash is attractive to shareholders because it eliminates stock risk and delivers money upfront.

Paramount’s financing is complicated but serious. About $41 billion of equity comes from Larry Ellison, RedBird Capital, and several Middle Eastern sovereign wealth funds. Ellison personally guaranteed more than $40 billion of that equity, which was meant to show that the money is actually there.

On top of that, Paramount lined up roughly $54 billion in debt commitments from Bank of America, Citigroup, and Apollo Global Management. The advisory team includes Centerview Partners and RedBird Advisors.

Each offer has its strengths. Netflix’s proposal is strategic. HBO and Warner Bros. content fits neatly with Netflix’s long-term goal of owning premium intellectual property that drives subscriber retention, allows for pricing flexibility, and generates steady cash flow. While it adds a lot of debt, Netflix is betting that owning this content will matter more than just chasing subscriber growth.

Paramount’s offer is appealing in a different way. It is all cash, higher upfront, and reduces risk for shareholders. No stock swings, no integration issues, just money now. That is why some investors see it as very attractive, especially with Ellison personally backing much of the funding.

Even with the higher cash offer, Warner Bros. Discovery’s board has rejected Paramount’s bid so far, citing concerns about financing certainty. Early versions of Paramount’s offer relied partly on a revocable trust, which raised questions about whether all the money was actually locked in. Netflix’s deal, though more leveraged, is seen as cleaner and easier to execute.

Antitrust is the biggest unknown. Combining Netflix with Warner’s studios would create a major force in streaming and content production, so regulators like the Department of Justice and FTC are expected to take a close look. Approval is not guaranteed, and the process could take months.

In the end, this is not just about who offers more money. The final outcome will depend on financing, strategic fit, and regulatory hurdles. Netflix seems to have the clearer path right now, but Paramount’s all-cash offer keeps the pressure on, making this one of the most closely watched media deals in years.

Disclosure: Nothing written here is financial advice or should be used for investment decisions.

Complex Merger Math Questions

If you're sweating for banking interviews right now, you won't want to miss this week's technical.

Problem: Company A has a PE multiple of 21.0x. Company B has a PE multiple of 19.0x. If Company A acquires Company B, is it accretive or dilutive?

Didn’t we already cover this? We covered the easy version here: "The Pulse" -- #132 / 8 New SA 2027 Banking Openings.

This week, we are unpacking a question that’s a next level harder.

Acquisition financing problems, ie 'Merger Math' can be tricky. These were my least favorite questions when I was recruiting. In fact, they're one of the top reasons candidates get bodied in interviews.

However, you need to think about what these problems are really asking——

It all boils down to the cost of capital--WACC! ✅

For the above problem, it's two-fold.

First, you need to ask 'how is the transaction financed?' ✅

With that information, you can proceed with calculating the answer using the procedure below:

1. (1/PE of Company A x % of equity in capital structure) + (cost of debt x (1- tax rate) x % of debt in capital structure) = WACC ✅

1/PE is an earnings yield--a short cut for cost of equity

2. Take 1/WACC --this is the earnings multiple of Company A when considering all capital structure components ✅

3. If 1/WACC > PE of Company B, the transaction is accretive. If 1/WACC < PE of Company B, the transaction is dilutive ✅

If you can buy a business that costs less per eps than investing in your own business, it is usually accretive. You just bought additional earnings power for the cheap!

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“The Pulse” #135