All eyes on Versant amid WBD deal battle
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Comcast on Monday completed the spinoff of its cable networks, now renamed Versant Media, and then watched the new company's stock plunge 13%.
Why it matters: Versant's value could impact the takeover battle for Warner Bros. Discovery, which later this week is expected to reiterate its preference for Netflix over Paramount, a source familiar with the situation told Axios.
Catch up quick: Netflix agreed to buy the studio and streaming assets of WBD for $27.75 per share, with WBD then to spin out its cable networks into an independent company.
- Paramount has launched a $30 per share hostile bid for all of WBD, including the cable networks, and extended its tender offer deadline from Jan. 8 to Jan. 21.
Zoom in: Paramount is offering approximately $5.6 billion more than Netflix's agreement, which therefore could be the tipping point for WBD shareholders.
- If WBD shareholders believe the cable networks are worth less, then they should tender their shares to Paramount.
- If they believe the WBD cable networks are worth more, then they should stick with Netflix.
- That's where Versant comes in, because it's the best directional comparison.
By the numbers: Paramount has said it believes WBD cable networks are worth $1 per share, or around $2.5 billion total.
- Wall Street analysts have argued that WBD's cable networks should be worth around $10 billion.
- That number also is just a hair above what Starz appears to have valued the assets during WBD's solicitation process, assuming that it valued the studio/streaming business similarly to Netflix.
- But some Wall Street analysts may have overpriced Versant, based on the stock dip.
- WBD shareholders won't make decisions based on one day of trading, but a sustained Versant slump could discourage belief in the prevailing valuation math.
Yes, but: WBD may argue that its cable assets and Versant won't perform similarly, given differences in their channel portfolios.
- Paramount argues Versant is better positioned than WBD's cable networks because its portfolio is more heavily reliant on live news and sports.
- Moreover, WBD's board still may question the Paramount deal's finances, despite a recent equity backstop guarantee from Oracle chair Larry Ellison, and its regulatory certitude.
The bottom line: Comcast bowed out of the WBD sweepstakes, but it's still playing an indirect role in the outcome.
