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Anne Berry (5:28)

Well, to kick us off today, we're going to dig into a story that we have been following with weeks, literally bringing out the popcorn to watch it while doing so, because we have been following the bid for Warner Brothers Discovery. Now, just to set the stage, the company had received unsolicited bids from Paramount, Skydance and rejected that company twice. But eventually Warner Brothers Discovery raised its hands and said, okay, we're now officially putting ourselves up for sale. Now, once it did so, bids came in from Paramount, Comcast and Netflix. And on Friday, Netflix announced that it was the winner, that it would acquire Warner Brothers TV, Film Studios and Streaming division for a total of 83 billion billion. With Netflix ponying up using a combination of cash and its own stock to pay for the deal. Now, since then, there's been an avalanche of opinions, there's been outcry from Hollywood, there's been talk of regulatory hurdles. And then to cap it all off today, an announcement of a hostile bid from Paramount going straight to shareholders with an increased valuation, meaning that the deal with Netflix is far from done. This is the kind of merger moment that has all the things that we love talking about. So we've got a lot to unpack and this story is not going away. This is going to take weeks to play out. So a lot of great stuff that we're going to cover here, starting with a review of the bids from Paramount and Netflix and what the battle really looks like right this moment. So to break this down, producer John and I are going to role play. I am going to be Netflix. So the English accent is Netflix and producer John's voice is Paramount. So let's go through this, this deal piece by piece because let's really put the jigsaw puzzle together and bring to life just how dramatic this is. Let's start with what is actually being bought. So I'm Netflix and I am buying, not the whole of Warner Brothers Discovery, which is a public company. Inetflix want to buy only the studios and the streaming assets. And one more piece of business I'm going to come back to towards the end of this segment because to me, it's the hidden gem. So again, Netflix, that's me only buying part of Warner Brothers Discovery, the studios and the streaming assets, for the most part. Paramount. What are you doing?

John Croteau (7:36)

My bid is for all of those things, plus the cable channels. That's the Discovery part. So that's tnt, that's even currently cnn, all those. And so it's a. It's a bigger deal. And we know that Warner Brothers Discovery is in the process of splitting itself up to have those be separate sides of the house. And they're currently spinning out those, those cable channels.

Anne Berry (7:59)

Got it. So now let's talk about the deal structure. So again, I'm Netflix buying studios and streaming assets only. Here is my offer. $23.35 per share in cash, plus $4.50 of value in my stock. So if you are, if I am the winning bid and you're a Warner Brothers Discovery shareholder today, this is what you end up with. You end up with 23 bucks 35 cents in cash per share. You end up with 4 bucks 50 worth of my Netflix stock. And what is left behind is what is left of Warner Brothers Discovery as a public company, which is the news channels, which is the cable assets, which Netflix is not buying. So you end up with three constituent things.

John Croteau (8:38)

Right, exactly. And for Paramount, it's for the whole thing. And so the bid is $108.4 billion. And that's an all cash deal at.

Anne Berry (8:46)

30 bucks a share.

John Croteau (8:47)

That's $30 a share.

Anne Berry (8:48)

Got it. And in comparison for Netflix, again, I'm not buying the whole thing. I'm paying roughly $83 billion in total deal value. Now, Netflix, I'm saying I am so confident that my bid is going to go through and I'm going to end up being the chosen winner that I am willing to take on a $5.8 billion termination fee. So if this deal does not go through, inetflix will pay Warner Brothers Discovery nearly 6 billion bucks. As a sort of sorry present, Paramount.

John Croteau (9:15)

And Paramount stepped up to the plate today, announcing that they're going to do 5 billion. So not quite up to the 6, but still a massive amount for a termination fee.

Anne Berry (9:23)

So now let's take a look at the risk that that termination fee is ever paid. And one of the big risks is whether the reg turn up and say, not happening, we are not going to approve your deal. So let's start with Netflix because I find this really fascinating. We have seen a lot of dissent from Hollywood, which we're going to come back to. But here from a regulatory outlook is what the verbiage is about. Folks are worried that regulators are going to look at the combined market Share for streaming, which would be Netflix plus HBO Max, which sits inside Warner Brothers Discovery. And basically it would make the combined business the biggest streamer in the United States. So there is some concern, and certainly Paramount is playing this up, that the regulators would not approve creating the biggest streamer in the US If Netflix ends up moving ahead with its bid. Paramount has other issues, right.

John Croteau (10:13)

They have antitrust concerns because they're combining two Hollywood studios, two big cable companies and two prominent news networks, because CBS News and CNN in theory, would come together with the Paramount buyout of all of that. And so there's antitrust concerns there. You've got Paramount Studios, Warner Brothers Studios. There's a lot of crossover there in antitrust concerns.

Anne Berry (10:35)

Got it. So now let's take a look at what the share price reaction has been. What have the actual investors in these two bidders said by voting with their money? Well, Netflix share price came down after that news came out on Friday that looked as though Netflix was going to be the winning bidder. P.S. how confident is Netflix? I have a Netflix subscription and I got an email over the weekend. Did you get this?

John Croteau (10:55)

Yes, I got it on Sunday, saying.

Anne Berry (10:56)

Basically, dear Netflix subscriber, we're going ahead with this. It's not going to impact your streaming anytime soon. And there's lots of opportunity. Massive display of swagger by Netflix saying to consumers like me, folks, this is happening. Anyway, Netflix stock did come down last week on the news that it was likely to be the winner at that moment in time in buying these particular assets. A sign by that stock price coming down that Netflix investors are not excited about the deal, either the price or the structure of it or the assets and the integration risk. And as a result, we saw that wobble. Paramount, on the other hand, buyers or investors, shareholders in Paramount had a very different reaction.

John Croteau (11:31)

That's right. Today with the news of the hostile bid. The Stock is up 7.5%. And so Wall street saying, this would be great. We want this to work for Paramount.

Anne Berry (11:42)

Right. So two different reactions, two very different bids. Let's take a look at what it actually means. So that's sort of the money that's been laid out. Let's talk, Take a look, John, at what Hollywood's reaction's been. You come from Hollywood, you lived in Hollywood, you've been at the Oscars. So Hollywood are you. So on behalf of your species, tell us how Hollywood feels about the promise of Netflix maybe buying Warner Brothers assets overall.

John Croteau (12:07)

Unhappy.

Anne Berry (12:08)

Unhappy.

John Croteau (12:08)

And Netflix knew this going in and they started laying out their vision for the combined company this past Friday. And they said things like Netflix expects to maintain Warner Brothers current businesses, including operations of the motion picture and television studio. There was some concern, you know, maybe they just shut down all of Warner Brothers production studios because Netflix already makes its own movies. They also said that they will retain theatrical releases for films, but Hollywood is skeptical about that because Ted Sarandos has said, well, we're open to changing the windows. And so there's one thing to say, will we put it out in theaters? But are they going to put it out in theaters for seven days? Are they going to put it out for months? But also in the press deck, Netflix expects to at least 2 to 3 billion dollars of run rate cost savings by year three.

Anne Berry (12:53)

That sounds like job cuts to me and it certainly seems to be the thing that Hollywood really is focusing on. So again, you got Netflix saying, look, we're going to have more access to studio capacity. That means greater ability to get some great content out there. They are saying we're going to have cost savings. And Hollywood in general is saying, look, there are only X number of buyers when we make a movie. You go to Netflix, you go to Apple, you put it out in the movie theaters, right? You go to Amazon. This idea that there is going to be one less buyer really is not appealing. So that's the Hollywood perspective. Now there's something else I wanted to just highlight and this is sort of my thesis around where there could be a hidden gem in all this. What has not gotten much publicity is the fact that part of the assets Netflix would be buying, it's not been called out explicitly, but I dug around in this. It's probably going to be the global experiences division of Warner Brothers Discovery, which is where Warner Brothers cuts deals with theme parks to license out things like Harry Potter to theme parks to make theme park rides or where there's merchandising and there's retail relationships. One of the things we know Netflix wants to do as a general strategic matter is find a way to monetize its content, its ip.

John Croteau (14:01)

Yes.

Anne Berry (14:02)

And it's doing some pop up experience with things like the Stranger Things house. But this is just my theory. You've got a division that it would be buying as part of this deal that makes about $500 million a year in revenue with a capability that Netflix does not have, but I think wants so something else just to watch out here. So let's take a look. You've got Hollywood's not happy. You've got Netflix saying the math makes sense. Just As a nerd, which I am, as we all know, when you take out those cost synergies, Netflix saying they would effectively be paying just over 14 times EBITDA, which is a measure of profit to buy this company, which by the way is less than Netflix has traded at recently. Which means just from a financial nerd perspective, there's an opportunity basically for this to be an accretive deal. And yet here we have Paramount today announcing it's going to go straight to Warner Brothers Discovery shareholders and to say, forget Netflix shareholders, go with us. This is a certain deal. We feel highly confident despite the regulatory concerns that we're going to get approved. And instead of you messing around with having three different pieces of currency for this deal, we're just going to give you all cash. Super simple. The whole company gets bought, no more risk.

John Croteau (15:09)

That's right. And Paramount Skydance CEO David Ellison said shareholders deserve an opportunity to consider our super all cash offer. But there was superior all cash offer. But there is some concern. There was reporting that Warner Brothers was uneasy with Paramount's bid having so much foreign backing that reportedly 24 billion of those dollars were coming from Saudi Arabia's public investment fund, including other places. And also one of those backers is President Trump's son in law, Jared Kushner's affinity partners.

Anne Berry (15:41)

His investment firm. Yes, his investment firm, yeah. So this was interesting at the time, what was being discussed was that Paramount's business bid, everyone was saying where are you going to get all this cash from? Right. And the response coming from David Ellison, Paramount Skydancer CEO was the Ellison family will backstop. Fancy way of saying guarantee that this cash will appear, but didn't actually disclose where all of it would come from. There's a bunch of debt financing that's around this too. And there is some participation not only from the sovereign entities you just described, mainly in the Middle east, also from Apollo Global Management. So that's the very big private equity and insurance and private credit firm. But to your point, the news did break today, I think it was an Axios actually that President Trump's son in law Jared Kushner's investment firm would also participate in providing some of that equity. Paramount did make it clear that those three sovereign wealth funds though providing capital, would not have any governance rights including board seats. So that is just an important technical point. Paramount would face regulatory scrutiny. Right. So again, as you just said at the top, John, as you were role playing being Paramount, two major Hollywood studios coming together, two cable companies, two prominent news networks together, is that A bigger regulatory risk than two big streamers to coming together. That is the crux of what is the regulatory risk here. Now, President Trump is not sitting on the sidelines.

John Croteau (17:03)

No, that's right. Over the weekend last night he was asked about this and he said that he would be involved in any approval decision. And he said specifically regarding Netflix. He said that the company's size quote could be a. And Netflix's CEO Ted Sarandos met with Trump in November. Trump called Sarandos fantastic.

Anne Berry (17:22)

So both. So President Trump is playing nicely with both.

John Croteau (17:24)

Yes, exactly. And yesterday Trump criticized a segment on 60 Minutes which is on Paramount CBS and he sent out a truth social message today that Paramount is no better than the old ownership. Since they bought it, 60 Minutes has actually gotten worse. And so Trump is, he's making friends with everyone and, and saying what he.

Anne Berry (17:45)

Thinks, backing no one explicitly right at this moment. Just also to put it in perspective, just to remind people. So David Ellison is the son of Larry Ellison. Larry Ellison is the founder of Oracle. Oracle has been at the epicenter of a number of different AI deals. We've got Project Stargate, which is part of the administration's push to try and make the United States sort of epicenter of AI advancements and also is one of the partners involved in trying to resolve TikTok and what ultimately happens to social media assets. So there's just a lot of connectivity between the Ellison family and the White House. Although as you just said, John, Netflix's co CEO Ted Sarandos did meet with President Trump in November and get a positive personal response from the president at that time. Just to sort of put some numbers around this, Senator Elizabeth Warren has been one of the voices voicing concern about the Netflix combination in particular saying this would create one massive media giant with control of close to half of the streaming market. And I saw Senator Warren post on X, got a bit of a chuckle that she called out, watching your favorite TV shows like Friends is going to get more expensive. I thought I saw her post this weekend. Netflix is over 300 million subscribers. It's the world's largest streaming service. HBO Max and Discovery plus has 128 million subscribers. And a core of the debate at the moment. Again, what would the regulators do? There is this question mark around whether the regulators would say, we don't like two streamers coming together because we define the market as the streaming market. Or can Netflix argue successfully, no, you should be focusing on the market for attention, so you should include the amount of time and eyeballs instead focusing on watching Instagram or watching YouTube or watching TikTok Reels. And if you look at the world through that lens with a much broader definition of the market, then, you know, they would argue that the combined streamers are a smaller percentage and therefore less worthy of perhaps facing a regulatory block. So just like a ton. A ton going on here. So let's talk about what happens next. Will it get to the point where. Where it goes to a Warner Brothers Discovery shareholder vote. So the idea is that Paramount from here tries and puts out a tender, which is it goes to buy shares in the market. The board, I've got to imagine I went and looked up the board of Warner Brothers Discovery, that this is a really high pressure moment. These are real people. They've got reputations to protect. They want to be seen to be giving all worthy bids fair consideration. There's the problem around not just valuation, but certainty. There's not just certainty, but also the components of the deal and what value ultimately is created for Warner Brothers Discovery shareholders. So there's going to be a lot going on here. This reminds me, John, so much actually of the Pfizer vs. Novo Nordisk battle.

John Croteau (20:26)

Yes.

Anne Berry (20:26)

That we saw for Met Sarah recently.

John Croteau (20:28)

And then all of a sudden, all.

Anne Berry (20:29)

Of a sudden, two bidders who just really wanted it. They pushed the envelope. They pushed what I thought was rational in terms of valuation. It was very public. Lots of litigation was threatened and actually started. And then all of a sudden it was over. So we thought that we take a look at the prediction markets to see what folks out there are saying. So, John, polymarket definitely has a sort of indicator here around what sentiment could be.

John Croteau (20:53)

That's right. Last week, Polymarket was saying that there was about a 23% chance that the deal with Netflix would close by the end of 2026. And now after the hostile bid, that is down to a 16% chance that Netflix will do this acquisition by the end of 2026.

Anne Berry (21:11)

So, just one thing, though, just as a point, and this is something that just stunned folks on Friday, again, Poly Market last week showed the odds of about 23% of Netflix doing this deal. If you look at the headlines last week, so many analysts were saying there's no way Netflix wants to do this deal. They're only throwing in the bid to make it more expensive for all of their rivals. So it drains their cash and depletes their resources. There's no way that Netflix wants to go and do a massive acquisition. It historically has not done them, not remotely in this scale. And nobody thought that this was going to happen and yet their Netflix was really serious about this and making it very clear that if this deal is available to them, they are absolutely going to move ahead and do it. So just shares today wrapping up. Netflix sort of coming down 4% as we mentioned. Again, interesting at the beginning it looked as though Netflix shareholders were breathing a sigh of relief that this deal was going not going to happen. Netflix shares nevertheless downed. It looks like the market can't make up its mind. Maybe they do want it to happen. Shares in Paramount are 7 1/2 percent. My take on this is Netflix shareholders just wanted the optionality shares in Warner Brothers Discovery, the real winner in all of this, up massively over 3% today to nearly 27 bucks. But you look at its year to date, just a share price just given all of the acquisition interest here. And Warner Brothers Discovery shareholders are very, very, very happy no matter what happens here. Well, let's take a quick break and when we come back, we're going to sprint through some headlines that moved the market today.

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Anne Berry (23:40)

4Pm now on the east coast as the closing bell, the markets are wrapping up for the day and we don't have a ticker tape. So let's throw it over to our human ticker, our producer John, for a quick rundown of the major indices.

John Croteau (23:50)

That's right, they all finished lower today. The S&P 500 was down a third of a percent, the NASDAQ finished down a tenth of a percent and the Dow was down nearly half a percent for the day. Some quick market headlines. Veteran investment manager Todd Combs is leaving Berkshire Hathaway to join JPMorgan Chase as Warren Buffett prepares to step back from running the conglomerate. Combs is one of Warren Buffett's investing quarterbacks and the CEO of one of Berkshire Hathaway's insurance portfolio companies, Geico.

Anne Berry (24:17)

Okay, we need to unpack this. We're not going to sprint through this one quite as quickly as maybe we would have thought. Let's just talk about Todd Combs a little bit more detail. He served on the board of JP Morgan for nine years. Okay. He's going to step down from the board when he takes this new job at JP Morgan in which he's going to run a new investment group for the bank and he's going to report directly to the CEO of JP Morgan, Jamie Dimon. So I just. This is one person's view, but I have a perspective on this. This to me is Todd Combs saying, if I'm not going to be the CEO of Berkshire Hathaway, I want to find somewhere else where I've got a shot. And this to me puts him in the running for succession planning for JP Morgan. And I think this is Jamie Dimon making a really, really smart hire as he thinks about who to pass the baton onto over at the big bank when Jamie Dimon finally decides to retire. It may be that speculative, but that's just my view. I think this is a succession play.

John Croteau (25:06)

And before the show we looked up how old Jamie Dimon is. He's older than I thought because he looks nice.

Anne Berry (25:11)

Looks fantastic. Yeah. Great energy. So keep on. Stay tuned. Stay tuned on that one. I've got my own theory. I'm curious to see how this plays out. Let's switch gears and talk to IBM. Let's talk a little bit of tech. John shares up nearly half a percent today after the company announced it's acquir the data streaming platform Confluent for $11 billion. Confluence, a pretty interesting business. Yeah.

John Croteau (25:32)

They have over 6,500 clients across multiple industries. They work with Anthropic, Amazon's AWS, Google, Microsoft, Snowflake, just to name a few. So a big acquisition.

Anne Berry (25:42)

Yeah. And if you actually look at what the business really does, and this is fascinating because I sort of poked around a bit to. It's so easy with these tech companies to sort of overlook what is the core of what they're doing. Confluent allows its clients to look at a lot of literally live stream data and look at it in real time. And the idea is helps to accelerate the cleansing and the use of data. Particularly important when AI it's all about the integrity of the information that's being used to feed the output of these models. So this is another big deal. A very interesting move for IBM. I actually really like this one. Confluent shares up 29% today, nearly hit 30% in response to that. So pretty high confidence in the market that this deal is going to go ahead. Well just a very quick final thought for today. It is Fed Week. I should have got my T shirt out saying Fed Week. The meetings do start tomorrow and then on Wednesday the long awaited announcement as to whether or not there is going to be a rate cut for December. Now we're going to come back to this on, on Wednesday when the news actually comes out. This is not an uncontroversial meeting. Double negative here because this is one where just to remember during the government shutdown there was an absence of some data. We have seen some conflicting data coming out over the last month or so in terms of the strength or not of the labor market, in terms of the strength or not of the housing market, in terms of the strength or not of consumers and a look at inflation stickiness and then you set that against a rip roaring market still did close down a little bit today but we have been hitting record highs again in a number of major stocks over the course of today's trading session. So we will find out again on Wednesday which is going to matter more to the Fed. Is it the labour market? Is it inflation? Is it something else? That's it folks for today's Brew Markets Daily.

John Croteau (27:26)

Brew Markets Daily is hosted by Anne Barry and produced by John Croteau, Tarkab Delatif and Emily Milian. Technical direction by Felicia Edwards. Brittany Dottocco is our audio engineer and the president of Morning Brew Inc. Is Devin Emery. We'd love to hear from you. If you have any feedback or a company you'd like to hear us cover, send an email or Voice memo to brewmarketshoworning brew.com Wake up tomorrow with the.

Anne Berry (27:45)

Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow, same time, same place. This.