David Ellison’s latest attempt to acquire Warner Bros. Discovery was rebuffed on Wednesday, but it hasn’t been all bad news for the Paramount Skydance CEO.
Paramount’s argument that its offer is superior to Netflix’s received an unexpected boost this week from the poor stock performance of Versant, the spinoff of Comcast’s cable TV assets, including CNBC and MS NOW (formerly MSNBC).
On Wednesday, WBD rejected Paramount’s eighth bid, telling shareholders and employees that Netflix’s offer to buy its studio and streaming business for $27.75 per share in cash and stock is a better deal than Paramount’s all-cash, $30-per-share offer for all of WBD, including its cable networks.
Despite the rejection, Ellison may have a new point of leverage: fresh evidence that investors don’t believe cable TV assets are highly valuable.
If Ellison can convince enough WBD shareholders of his position, it could force the WBD board to reconsider.
How much are WBD’s cable networks worth?
One key question when comparing Netflix and Paramount’s bids centers on the value of WBD’s TV networks.
There’s a difference of $2.25 per share between Paramount’s bid for the entire company and Netflix’s bid, which excludes those cable networks.
If the networks are worth $2.25 per share or more, Netflix’s proposal starts to look like a no-brainer. If they’re worth substantially less than that, Paramount’s price of $30 per share for the whole business may look more attractive.
Ironically, this gives Paramount the incentive to talk down the value of the TV networks it’s trying to buy, while it could be advantageous for Netflix to laud assets it doesn’t want.
In its Wednesday rejection letter, WBD pointed to an added wrinkle. WBD said that Paramount’s bid had added costs, including a $2.8 billion breakup fee payable to Netflix if WBD changed course, a $1.5 billion cost to lenders if it doesn’t complete a debt exchange, and about $350 million in additional financing costs. That $4.7 billion sum would take about $1.79 per share away from Paramount’s price, WBD said.
Media analysts have a range of views on the value of WBD’s “Global Networks” division, but several have cited the new cable company Versant, which began trading Monday, as a comparison.
In the three days since its public debut, Versant has lost about a quarter of its value. Shares are down to about $33.80 from a starting point of $45.17. Worth noting: One possible factor that could be impacting the sell-off is that some large funds that own Comcast shares can’t own Versant and were thus forced to sell it.
Versant’s market value is now under $5 billion, making its enterprise value roughly $7.25 billion, after including $2.25 billion in net debt. The media company told investors it expects to generate $1.85 billion to $2 billion in EBITDA, a common profitability metric, in 2026.
That means Versant’s EV/EBITDA ratio — meaning equity and debt, divided by this year’s adjusted earnings estimate — is about 3.8x. That’s far lower than the high-single-digit or low-double-digit EV/EBITDA multiple that many S&P 500 companies are valued at.
Versant’s low valuation suggests that the market lacks appetite for cable TV assets, which is an ominous sign for the potential future of WBD’s cable networks, including CNN, TNT, and HGTV.
If WBD’s Global Networks traded at the same 3.8x EV/EBITDA ratio that Versant has, it would be worth only about $1.20 per share, based on MoffettNathanson’s estimate for $4.8 billion in 2026 EBITDA.
A $1.20-per-share valuation for WBD’s Global Networks would bolster Paramount’s case to WBD shareholders (though it wouldn’t necessarily mean the current offer is better than Netflix’s, given the added costs WBD’s board pointed to). A person familiar with Paramount’s thinking said the company’s estimated value for WBD’s cable networks is even lower, at $0.56 per share.
MoffettNathanson valued WBD’s Global Networks at $3.51 per share in a mid-December note.
Apples to apples, or apples to oranges?
Ellison and company shouldn’t celebrate yet.
Versant and WBD’s Global Networks aren’t necessarily an apples-to-apples comparison, even though they both own cable networks and have a substantial mix of live sports and news. Many analysts see WBD’s portfolio — which includes CNN and major live sports rights like the NHL, college football, and “March Madness” college basketball — as more valuable than Versant’s asset mix, which includes MS NOW and broadcast rights for the Premier League and the PGA Tour. However, WBD’s Global Networks is set to carry far more debt than Versant, at $15 billion versus $2.25 billion.
WBD downplayed the similarities between Versant and its cable networks in its latest shareholder letter, saying that its business “has greater scale and profits, with a geographically diversified footprint and strong international presence,” including CNN. It also said the streaming service Discovery+, which is included in that division, “generates substantial revenue.”
Analyst Rich Greenfield of Lightshed Partners said in a Wednesday note that WBD’s cable assets are far more valuable than Versant’s.
Greenfield said he expects WBD’s Global Networks to be “sold and/or broken up after it spins out,” which he believes would unlock “significant value that far exceeds where the stock would trade as a stand-alone public company.”
If Paramount can’t convince shareholders that its $30-per-share offer is more valuable and less risky than Netflix’s arrangement, Ellison could always raise his bid and force Netflix to match.
Greenfield thinks a bidding war could break out.
“There is still a path for Paramount to outbid Netflix with a substantially higher bid, but it will require an overhaul of their current bid, and a dramatic increase in the cash invested from the Ellison family and/or their friends and financing partners,” he wrote.
