An options strategy that could tap Netflix's value no matter what happens with Warner Bros. deal
Merger uncertainty is pressuring Netflix stock, which is down almost 29% from its June highs, while options premiums have risen considerably.
TL;DR
- Paramount Skydance initially approached Warner Bros. Discovery (WBD) about an acquisition.
- Netflix formally entered a bidding war for WBD's assets, with an offer of $27.75 per share in cash and stock, which WBD accepted.
- Paramount Skydance then announced a hostile bid for the entirety of Warner, valued at nearly $103.6 billion.
- If Netflix's deal is blocked by regulators or they walk away, Netflix owes WBD a $5.8 billion breakup fee.
- If WBD accepts a higher bid, they owe Netflix a $2.8 billion breakup fee.
- Both Netflix and Paramount face pushback from unions and politicians.
- Despite the uncertainty, Netflix is projected to see significant revenue and earnings growth.
- Netflix shares are down nearly 29% from June highs, and options premiums have risen.
- An investor might consider a call spread risk reversal strategy due to the current uncertainty and pullback in Netflix's share price.