Netflix stock (NASDAQ: NFLX) surged in pre-market trading on Wednesday after Warner Bros. Discovery’s (WBD) board officially recommended that shareholders accept Netflix’s $82.7 billion acquisition offer.
The call rejects a higher unsolicited $108.4 billion bid from Paramount.
The board’s decisive backing clears a major hurdle for the streaming giant, but the rally suggests Wall Street is pricing in deal certainty that may be premature given the intense regulatory road ahead.
Netflix stock: What the board’s recommendation changes
The WBD board’s statement effectively ends the friendly phase of the bidding war, urging shareholders to vote for the Netflix merger despite Paramount’s nominally higher face value.
The board characterized the Netflix agreement, valued at approximately $27.75 per share, as “superior” due to its equity upside and financing certainty.
The development has severely undercut Paramount’s ability to frame its hostile $108.4 billion offer as the fiscally responsible choice.
For investors, this recommendation solidifies the path to closing.
The market’s positive reaction reflects the reduced risk of a drawn-out boardroom battle, with analysts noting that WBD’s leadership views Netflix’s stock as a more valuable long-term currency.
The endorsement allows Netflix to proceed with integration planning and regulatory filings with the target company’s full cooperation.
Ted Sarandos, Netflix co-CEO, welcomed the move in a statement emphasizing the strategic fit:
The Warner Bros. Discovery Board reinforced that Netflix’s merger agreement is superior and that our acquisition is in the best interest of stockholders. This was a competitive process that delivered the best outcome for consumers… and the broader entertainment industry.
Risks investors still need to watch
While the board’s approval removes internal friction, it does not solve the massive external risks threatening the deal’s completion.
The merger faces a buzzsaw of antitrust review.
Senators Elizabeth Warren and Bernie Sanders have already urged the DOJ to investigate, warning that combining the largest paid streamer with HBO Max’s library could create an unstoppable pricing monopoly.
Netflix’s defense is that it needs WBD’s assets to compete with YouTube, which seems to be an untested legal argument that regulators may view skeptically.
The board’s “yes” vote does nothing to speed up this 12-to-18-month federal review process.
Investors must also weigh the financial strain. The $82.7 billion enterprise value, while lower than Paramount’s bid, involves significant stock dilution for existing Netflix shareholders and the assumption of WBD’s debt load.
Wall Street will be watching closely to see if Netflix’s free cash flow can support this leverage without compromising its content budget.
Short-term traders should trade the volatility around regulatory headlines and Paramount’s counter-moves.
Long-term investors, however, need to model the impact of dilution and debt. Backing this deal means betting that the combined “Netflix Max” entity can generate enough pricing power to offset the massive cost of acquisition.
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