December 8, 2025 • 22 mins
Watch Scarlet and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg Intelligence hosted by Paul Sweeney and Scarlet Fu
-Chris Palmeri, Bloomberg News Senior Editor and Entertainment Team Leader, discusses Paramount Skydance launching a hostile takeover bid for Warner Bros. Discovery Inc. at $30 a share in cash on Monday, just days after the company agreed to a deal with Netflix.
-Jennifer Rie, Bloomberg Intelligence Senior Litigation Analyst, discusses the regulatory hurdles for acquiring Warner Brothers Discovery. According to Bloomberg intelligence: Netflix's proposed acquisition of Warner Bros. studio and streaming assets will likely undergo rigorous antitrust scrutiny in the US and elsewhere and it's at risk of antitrust challenges.
-Stephen Flynn, Bloomberg Intelligence Senior Credit Analyst, discusses debt commitments for Warner Brothers Discovery acquisition. According to Bloomberg Intelligence: Netflix net leverage could increase to more than 3x and the raters may put the company on negative outlook, if it were to reach an agreement to buy Warner Bros. studios and streaming operations for about $75 billion in a mostly cash deal.
-Anurag Rana, Bloomberg Intelligence Technology Analyst, discusses IBM buying the data-streaming platform Confluent Inc. for about $9.3 billion, marking one of its largest takeovers yet and a major bet on the kind of enterprise software that artificial intelligence tools need to perform tasks in real time.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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Speaker 2 (00:24):
You know, you wait five more minutes and there's going
to be a new headline here to paramount S Guidance
versus Netflix for Warner Brothers. But we know that this
will be a deal that takes a long time to resolve.
Speaker 3 (00:33):
You know, there are differences.
Speaker 4 (00:34):
You know, the Paramount deal is all cash and it
is for the entire company. So those two things make
it much much cleaner than the Netflix one, which includes
twenty seven to seventy five and cash plus four dollars
per share in Netflix stock, which has historically been a
great thing to own. But it's contingent upon the separation
(00:56):
of the Warner brother separation of its cable networks, which
was a plan all law banned all along, and they've
already done a lot of work on it. And then
so the value, the value total value seems pretty darn similar.
It's just probably going to come down to who has
a cleaner path to approval, and you know, you could
do that math we talked to generally and it's that
(01:16):
math is pretty darn straightforward. But now we have the
added uncertainty which we historically had not had an M
and a of you know, this is becoming politicized, you know.
Speaker 2 (01:26):
Absolutely, because so we'll see Paramount Skuideance controlled by David Ellison,
son of Larry Ellison. Ellison's have a very good relationship
with President Trump, with the White House, and so they
have made the argument implicitly or explicitly that this deal
has the President's blessing, so therefore it will go through
more easily. Whereas we know that there's a lot of
(01:48):
concern here about Netflix and it's bid for Warner Brothers
dis great assets, not even the entire company here, and
it all depends on how you define the streaming market,
whether it includes YouTube or not.
Speaker 5 (02:00):
So there's a lot here to get through.
Speaker 2 (02:02):
Let's bring in Chris Paul Mary Bloomberg News Senior editor
and Entertainment team leader on this deal. Chris, just give
us a sense of what people in LA are saying,
because most of these businesses take place in LA. Maybe
not as much as they once did, and I'm curious
to get a sense of how the industry is thinking
about it.
Speaker 6 (02:22):
I can tell you I was having dinner Saturday night
at a time restaurant with the family, and my daughter's
friend who's seventeen.
Speaker 7 (02:30):
She goes, Netflix is buying Water Brothers.
Speaker 6 (02:32):
I mean, this is just one of those things that
just is shocking to everybody, but particularly to people that
work in Hollywood.
Speaker 7 (02:38):
It's been a really tough few years.
Speaker 6 (02:40):
We've seen, you know, so much consolidation in the industry already,
and job losses and movies and TVs shows being shot
overseas and strikes and just the you know, the promise
of another big merger like this. It's just, you know,
people are really unhappy and in shock.
Speaker 4 (03:00):
Chris Surah feeling it seems like if Paramount were to
acquire Warner Brothers this discovery, there will be more overlap
therefore more jobs at risk.
Speaker 3 (03:11):
Is that the Is that the correct way to think
about it.
Speaker 6 (03:14):
Yeah, although you know they both acquires in Paramount and
one of Brothers, they're trying to downplay, you know, the
job loss as part of it. Netflix did say they
looked at two to three billion dollars in annual savings.
Much of that basically in overhead, you know, redundant jobs.
But they were each trying to make the case that
(03:35):
their merger would be a little bit less worse.
Speaker 7 (03:37):
I guess you could say.
Speaker 2 (03:39):
Just a quick note here, we have a correction to make.
The Bureau of Labor Statistics will now publish the October
and November PPI data together in January. I mean, the
net effect is at the end of the day, Paul,
All this data will come out after the fed's meeting
this Wednesday.
Speaker 4 (03:54):
Hey, Chris Paramount owns the Paramount movie in television studio.
Warner Brothers are It's the Warner Brothers studio, is there, right?
Can you put those two things together there? From a
regulatory perspective.
Speaker 6 (04:07):
Well, what they're doing is they both said both Paramount
and Netflix have said they want to kind of maintain
the creative executives is working separately at Warner Brothers. Warner
Brothers has had a phenomenal TV business. One of the
issues for Netflix is that historically Netflix has produced just
stuff for Netflix. But they have said they, you know,
(04:29):
will continue the policy of Warner Brothers making shows for
other people, you know, and they do, you know, have
had a huge track record of that historically, so that's
one of the things. Paramount also has said it would
keep the Warner Brothers creative team together.
Speaker 4 (04:46):
I'm not sure I believe that I would argue just
from my own perspective, Chris, I'm I wonder what the
folks in la are thinking. This is kind of a
more of a must have for Paramount sky Dance versus Netflix.
It's nice to have. Do you think that's accurate?
Speaker 6 (05:05):
Yeah, I you know, I think if you just look
at the public commentence from the two Netflix co CEOs,
you know, Greg Peters was initially kind of dismissive of
media mergers and was really paring cold water on this idea.
Speaker 7 (05:17):
So I think that the idea that Netflix is.
Speaker 6 (05:20):
That all in uh is, you know, is definitely a
legitimate one. Uh, you know, Paramount, I think, you know,
Michael Maffat Nathanson put out of you know something over
the weekend saying, and I think this is true. Netflix
has been the winner historically, and so if you want
to find a home, best home for your you know,
(05:42):
outstanding intellectual property, Batman, Harry Potter, Game of Thrones, on
and on, you know, they're the ones that are going
to get it all around the globe and invested in
all that. Putting two struggling companies together is it raises
more issues. It's it's everyone always sort of seems to
suggest that and almost any industry, but it doesn't always
translate into outperformance.
Speaker 2 (06:04):
Chris, this deal, no matter who wins out, Netflix or
Paramounts guidance will take a while to resolve. There's going
to be legal challenges there. It's gonna be anti trust
regulators looking into it. What does that mean that long
lead time mean for Warner Brothers is ability to just
do business and be the best performing studio it can be.
Speaker 5 (06:23):
In the meantime, it hurts it.
Speaker 6 (06:25):
I mean David's ask on footoo a note last week
the CEO of Warner Brothers saying, everybody just focused on
your work and listen to your business leader.
Speaker 7 (06:32):
This isn't gonna This is.
Speaker 6 (06:33):
Going to take a while, but you don't even have
to look very far or very long to find out.
If you remember, you know, the challenges AT and T
had when it bulable Warner Brothers a few years ago.
There was an extended there was a lawsuit by the
Justice Department really extended time to.
Speaker 7 (06:47):
Close that deal.
Speaker 8 (06:48):
Uh.
Speaker 6 (06:49):
You know, many people believe that it held the company
back in terms of you know, launching its own streaming
service and you know, investing in the business. You know,
I I don't see Warner Brothers core business helped by
an extended regulatory review that really either bitter Paramount or
Netflix would face.
Speaker 3 (07:10):
Stay with us. More from Bloomberg Intelligence coming up after this.
Speaker 1 (07:16):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Applecarplay and Android Auto
with the Bloomberg Business App. Listen on demand wherever you
get your podcasts, or watch us live on YouTube.
Speaker 4 (07:31):
All Right, the Warner Brothers Discovery deal just got a
little bit hotter here today we have an over the
top hostile bid from Paramount, sky Skydance, whatever they're called
these days.
Speaker 3 (07:41):
That is for the entirety of the company. This is
going to come down to regulatory hurdles. That's going to
be one of the key key issues.
Speaker 4 (07:47):
So for that return to generation covers all the antitrust
stuff here for Bloomberg Intelligence, Jen, does one potential buyer Paramount,
sky Dance or Netflix, does one have a clearer path
to regulatory approval.
Speaker 9 (08:00):
I think absolutely. I think Paramount has a far clearer
path to approval. I mean, if you just think about
them in terms of the streaming overlap, and when I
talk about streaming, I am talking about a narrow market
for just streaming services and not a broader market that
might include YouTube. They are much smaller than Netflix, and
so when you combine HBO Max with Paramount Plus versus
combining HBO Max with Netflix, it creates far less of
(08:23):
a problem. You know, and looking across at the creation
of original scripted content, let's say that's a market that
the Department of Justice looks at. Again, the combination is
smaller than the combination of Netflix with Warner. And then
you have the added cable channels. So Paramount has cable channels,
Warner has cable channels. Netflix would not be buying those.
So that is an issue that arises in the Paramount
(08:45):
situation and not Netflix. But I do think if there's
any problem there, that's easily resolvable. So in my mind,
Paramount's the better buyer from an antitrust perspective.
Speaker 2 (08:53):
I'm curious about the termination fees involved in this deal.
Netflix says that will pay a termination fee of five
billion dollars of the deal fails. That seems really large.
Paramount Skuidances offer includes a five billion dollar termination fee.
Just talk a little bit about the amounts involved there
and what the fact that well, at least to me,
it seems pretty large, says about what each side thinks
(09:14):
of the possibility of this going through or not.
Speaker 9 (09:16):
Relatively speaking, it's a very large termination fee. You know,
you usually see these as two percent or three percent
of the purchase price, and Warners had to do that
when they negotiated this. I mean, there is a high
risk right that a Netflix deal would ultimately not get done,
that they could get sued in court, that they could
lose in court, it would break up.
Speaker 3 (09:32):
So they need to be.
Speaker 9 (09:33):
Protected because their business is just frozen for two years practically,
and it does impact a seller's business right to kind
of be in limbo that long. And that's what the
termination fee is meant to do. Now, I think they
have far less of a problem with Paramount, but you
never know, and so I think to protect themselves, Warner
would have wanted to work that in and Paramount wants
(09:54):
to give that kind of insurance in case there's some
problem there too.
Speaker 3 (09:58):
Now, okay, so what are the next step?
Speaker 4 (10:00):
So here, if I'm the board of Warner Brothers Discoverer,
do I have to respond to this thing?
Speaker 9 (10:06):
Well, Paramount it's a hostile takeover, so they're going against
the board's wishes.
Speaker 5 (10:11):
Basically, we know what the board wants.
Speaker 9 (10:13):
The board seems to prefer Netflix, even with all the
anti trust risk it brings. So now it's just going
to depend on what happens here as they go forward
and they solicit the shareholders. I think the deal that
would get done more quickly and has the surest path
would be the Paramount deal. So if Warner's interested in
getting something closed within the next year, I think Paramount
(10:35):
would be the company that they'd go with. I don't
see them getting a Netflix deal closed in the next year.
Speaker 2 (10:40):
Let's talk about the politics part of this. Axios is
reporting that Jared Kushner is helping to finance Paramount's bid
for Warner Brothers Discovery, and that Axios is citing a
regulatory filing on this Kushner financing bid. Does that put
it in a better position? Because Larry Ellison has a
good relationship with President Trump, Jared kush Or, the president's
(11:01):
son in law, is involved here, even as Larry Ellison
tells other media that if he feels that the deal
was inherently biased towards Netflix.
Speaker 9 (11:09):
Well, I would say if things were conventionally done, then
it shouldn't. It should be all about anti trust. It
should be the analysis the economists and their assessment of
the markets and the impact on the markets. But in
today's day and age, there is an impact from politics,
and the administration does seem to kind of micromanage these decisions,
(11:30):
and so I think politics is a significant factor here,
right next to anti trust. And from what you just
told me and what we've read, it seems paramounts the
favorite bidder by this administration as well.
Speaker 3 (11:40):
Stay with us more from Bloomberg Intelligence coming up after this.
Speaker 1 (11:47):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am. He's done on Apple, Cocklay and
Android Auto with the Bloomberg Business app. Listen on demand
wherever you get your podcasts, or US Live on YouTube.
Speaker 2 (12:02):
One thing we didn't get to is the credit market.
And of course we've seen yields, we've seen spreads really
really tight, even as we've seen a lot more supply
come into the market because of all the spending on AI,
and there's going to be even more spending in twenty
twenty six. So let's bring in right now Steven Flynn,
he's a senior credit analyst at Bloomberg Intelligence, and Stephen,
(12:22):
we want to really dig into Netflix because as part
of this bid for Warner Brothers Discovery, it's going to
be getting a fifty nine billion dollar bridge loan, the
biggest investment grade bridge loan in a while, and of
course that means eventually that will be replaced by corporate
debt as well. How are you thinking about what kind
of market impact that will have.
Speaker 10 (12:42):
Well, first of all, it's sort of that Netflix is
a very strong credit So Netflix has a significant market cap.
It's you know, four hundred and twenty five billion dollars
or so. The company is growing, revenue, growing evada, growing
free cash flow. It's net leverage ratio is very modest,
talking zero point four turns of leverage.
Speaker 8 (13:00):
A company generates a ton of free cash flow.
Speaker 10 (13:02):
So Netflix is a very strong credits rted A three A,
so they have the ability to borrow. So within that
fifty billion dollars that they have as acquisition debt. There's
been a reporter that's twenty five billion dollars will likely
be bonds, and there remain will probably be a combination
of term loans and maybe some other borrowing. And while
twenty five billion sounds like a lot, if we think
about Netflix bonds in the market right now, they're relatively scarce.
(13:24):
Right So if Netflix is part of communications, you think
about borrowers like a teen T Verise and Comcast T Mobile.
Those companies have huge debt loads and are large parts
of the investment grade corporate bond indict. So Netflix is
relatively small, So I think that there could be a
lot of interest in Netflix bonds, So I don't think
it's a problem at all.
Speaker 4 (13:42):
And then the news of the day here Paramount coming
back over the top of the hostile bid Warner Brothers Discovery.
They're talking about fifty four billion dollars of debt commitments
from Bank of America, City and Apollo. So again, your
market is going to have a lot to say about
how this deal gets done, isn't it.
Speaker 10 (14:00):
Yeah, this is a completely different story, right So Netflix,
of sorry, paramounts guiddances on the edge of investment grade.
So the investment grade by excuse me, by Moody's and Fitch,
High yield by S and P. If you you know,
they're talking about the combined company could have about one
hundred billion dollars a debt.
Speaker 8 (14:17):
So if we look at the debt loads at.
Speaker 10 (14:19):
Both paramounts, Guidance and Warner Brothers, you're talking about an
incremental fifty billion dollars.
Speaker 8 (14:23):
You just they have a you know, fifty four billion
dollar commitment.
Speaker 10 (14:27):
You're talking about pro form net leverage over five times,
and that's including synergies, right, so that's going to be
much tougher. You're talking probably a good chunk of that
will be high yield, and that is a lot for
the highield market. Now, the highal markets very strong. Issuance
is up, yields are down. I think you know it's
the highal market is very favorable. But this would probably
(14:49):
be the biggest name in high yald. The biggest name
highyield right now is Charter, So Charter unsecured bonds are
the biggest name. There's about twenty five billion dollars market
value for Charter bonds in the Bloomberg Highyield in it
depending on how they set it up but this could
easily become you know, the biggest name or close to it,
So that makes it much tougher.
Speaker 8 (15:07):
Now we have to see all the details.
Speaker 4 (15:08):
But so if I'm a shareholder Warner Brothers Discovery a
the regulatory aspect which Jenery just walked us through.
Speaker 3 (15:15):
But now I've got the sitting there.
Speaker 4 (15:16):
If I'm an equity shoulder, do I want to be
sitting there with a balance sheet of five times leverage?
Speaker 10 (15:23):
Well, if you're a Warner brother shareholder, you're getting cash, right,
so you could only But if you're a paramount shaholder, yes,
you have to be concerned that the pro form of
company will have a significant amount of leverage.
Speaker 8 (15:33):
And that has a big name in high yield.
Speaker 10 (15:35):
But you do you know they also have big backers
behind them, right between the Allison family and Redbird Capital.
Speaker 3 (15:41):
Pramon scot Dance stock is up five percent today.
Speaker 5 (15:44):
Yeah, well, I mean, but this is not going to
end anytime soon. This is going to drag on.
Speaker 2 (15:47):
So Stephen, media companies being heavily indebted, what do we
know from about the appeal of this sector to investors?
I mean, I think about Warner Brothers Discovery when it
came into being. It took on a lot of David
Zasov spent years trying to pair that down.
Speaker 8 (16:03):
Yeah, and he was unsuccessful.
Speaker 10 (16:04):
Right, the company was junked and they ended up doing
a massive tender offer where they put in a lot
of secure debt ahead of the existing bonds and then
use that to tender for existing bonds at a discount
to par So bondholders really got hurt then, and then
the company, you know, was junked.
Speaker 8 (16:18):
So it's been tough.
Speaker 10 (16:19):
It's you know, when you think about communications in general,
people feel a lot more comfort. We're lending to more
traditional communications companies like telecom cable, you have hard assets,
it's a little bit easier to lend to.
Speaker 8 (16:30):
It is a little bit tougher in media. So this
would be a large name for media.
Speaker 3 (16:33):
What's paramounts?
Speaker 4 (16:34):
Does Paramount have a view like does a marketplace have
a view on powamount?
Speaker 10 (16:40):
Well, Paramount, it's not a very large name and it
is on the cusp of IG. It trades very wide
for IG, but that's because it's on the cusp and
there's fears of a certain deal like this. Now there's
two sides, right, you have the positive of the Elson
family and Redbird coming in and saying, hey, there's support there.
You know, I know we have somebody that's that backing us.
(17:00):
Things can't get too bad. And the flip side, you know,
the business is challenged, and you know there is the
risk of.
Speaker 4 (17:06):
High yield I mean back of my date for this,
this kind of deal and your higeld I mean high
yield market. Five phone calls, I would I would get
a sense of whether.
Speaker 3 (17:14):
The deal could get done. Is it still like that today?
Speaker 6 (17:16):
Yeah?
Speaker 8 (17:17):
Sure, if you call the right people, that's right.
Speaker 3 (17:18):
And I knew the people to call, and they would say,
I don't think so, Paul, I don't think we can
get this.
Speaker 11 (17:23):
You know.
Speaker 2 (17:24):
Well, speaking of the right people, Jared Kushner is part
of this paramount hostile deal bid for Warner Brother's Discovery
through Affinity, the firm that he runs. So there's all
kinds of political considerations as well.
Speaker 5 (17:36):
How do you anticipate.
Speaker 2 (17:39):
Warner Brother's Discovery bonds to trade in the meantime, I mean,
what does that look like?
Speaker 10 (17:42):
Well, they've been very volatile, right, So if you go
back a couple of months ago when they got jumped in,
there was the big tenor offer of the bonds were crushed,
they were chart trading at large discounts to par. Then
they've had a nice run over the last couple of
months with all the speculation of being bought out. Now
the Netflick Flicks deal happened and the existing bonds appear
to be left behind with global networks business which is
somewhat deteriorating. So the mons traded off a little bit
(18:04):
on Friday and then now coming in with having Ellison
in Redbord behind you, that's giving a little bit more
of a left but they're likely to remain very volatile.
Speaker 3 (18:13):
Stay with us. More from Bloomberg Intelligence coming up after this.
Speaker 1 (18:20):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Apple, Cocklay and Android
Auto with the Bloomberg Business app. Listen on demand wherever
you get your podcasts, or watch us live on YouTube.
Speaker 2 (18:35):
IBM buying conflent for nine point three billion dollars in
cash or eleven billion dollars if you include debt on
our Agrana is Bloomberg Intelligence's technology analysts and he joins
us now, So on rag, what can you tell us
about how this fits in with IBM's ambitions, in particular
it's AI ambitions, which it's really been repositioning as business around.
Speaker 11 (18:53):
ViBe's done a very good job since the acquisition of
red Hat. Not only did they pivot and move towards software,
which is a much higher margin business, they actually have
margin improvement because the gross margin of those businesses is
very high. Since then, they've bought a number of companies
Harshi Corp, Appto and now Confluent. The big thing what
we want to think about over here is enterprises do
(19:17):
not always go with either AWS or Microsoft. They do,
you know, look at open source as a way of
building their infrastructure. Confluent specializes in open source streaming data platform,
which is when you are looking at real time data,
whether it is you know, something that comes from a
telemetric device or even transactions that are happening at a
(19:40):
retailer or a bank, you can ingest that data directly
into your system and then make sense out of it. Now,
that's going to be helpful as enterprises infuse more AI
into their application. So strategically, smart move financially also smart.
Speaker 4 (19:55):
Red headline crossing the Bloomberg terminal the BLS to not
publish October PPI data, which I.
Speaker 2 (20:01):
Believe makes sense given that if I recall correctly, the
BILS already told us that it's not publishing October jobs
or CPI data either, right, So that's kind.
Speaker 3 (20:10):
Of what we heard from a lot of it at Connors.
We'll talk to Mike McKey about that. Yes, absolutely, Yeah,
that's coming up all right. IBM, this is as a kid.
Speaker 4 (20:17):
IBM was technology, that was the impitomy of tech technology.
Then the Internet came along and they kind of missed it,
so you didn't think about them a whole lot. Now,
if you put up a stock chart, over the last
five years, the S ANDP has compounded at about fifteen
percent per year. IBM over that timeframe twenty six percent
per year ANAG what's the what is the turnaround of
(20:39):
this aircraft carry over the last five years? Now?
Speaker 11 (20:42):
As I said, I think it is the acquisition of
red Hot. I think the CEO has done a very
good job of blending that particular you could say, operations
within their services platform, because when you think about the
IBM prior to that, it was very services heavy. That's
a business that has forty fifty percent gross margin, not
as profitable as software businesses. By being open, by going
(21:04):
out and buying software businesses, their financial profile has changed,
their cash flow has changed, and I think it's more
stable in nature. They're still not at a point that
their sales growth is going to be in double digits,
but they are inching towards their target and it may
be you know, two to three years before they get there.
Speaker 2 (21:21):
So, Honor rog what's interesting about this particular acquisition is
IBM is definitely making inroads or greater inroads into AI,
but this is not a data center driven acquisition.
Speaker 5 (21:31):
What do you think that means in terms of the next.
Speaker 2 (21:33):
Stage of M and A that we're going to hear
from the tech industry when it comes to taking advantage
of opportunities in AI, but not necessarily buying AI data centers.
Speaker 11 (21:43):
You see, everybody has their own strategy what they are
focusing on. IBM luckily, and it's good for them that
they don't want to be in that, you know, a
capital intensive heavy data center business. Because this is a
company that generates let's say fourteen fifteen billion in free
cash flow. They can't go out and buy another day
expand into a data center space where the capital investments
(22:03):
is multiples of that. They are doing the smart thing
of buying software companies that are not capital intensive heavy.
When you are going out and creating a new application,
you know the raw material You need the raw materials
to create or embed that. And that's where they are
focused on and I think for what they do, it's
it's a very smart place to be in.
Speaker 1 (22:24):
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Speaker 2 (00:24):
You know, you wait five more minutes and there's going
to be a new headline here to paramount S Guidance
versus Netflix for Warner Brothers. But we know that this
will be a deal that takes a long time to resolve.
Speaker 3 (00:33):
You know, there are differences.
Speaker 4 (00:34):
You know, the Paramount deal is all cash and it
is for the entire company. So those two things make
it much much cleaner than the Netflix one, which includes
twenty seven to seventy five and cash plus four dollars
per share in Netflix stock, which has historically been a
great thing to own. But it's contingent upon the separation
(00:56):
of the Warner brother separation of its cable networks, which
was a plan all law banned all along, and they've
already done a lot of work on it. And then
so the value, the value total value seems pretty darn similar.
It's just probably going to come down to who has
a cleaner path to approval, and you know, you could
do that math we talked to generally and it's that
(01:16):
math is pretty darn straightforward. But now we have the
added uncertainty which we historically had not had an M
and a of you know, this is becoming politicized, you know.
Speaker 2 (01:26):
Absolutely, because so we'll see Paramount Skuideance controlled by David Ellison,
son of Larry Ellison. Ellison's have a very good relationship
with President Trump, with the White House, and so they
have made the argument implicitly or explicitly that this deal
has the President's blessing, so therefore it will go through
more easily. Whereas we know that there's a lot of
(01:48):
concern here about Netflix and it's bid for Warner Brothers
dis great assets, not even the entire company here, and
it all depends on how you define the streaming market,
whether it includes YouTube or not.
Speaker 5 (02:00):
So there's a lot here to get through.
Speaker 2 (02:02):
Let's bring in Chris Paul Mary Bloomberg News Senior editor
and Entertainment team leader on this deal. Chris, just give
us a sense of what people in LA are saying,
because most of these businesses take place in LA. Maybe
not as much as they once did, and I'm curious
to get a sense of how the industry is thinking
about it.
Speaker 6 (02:22):
I can tell you I was having dinner Saturday night
at a time restaurant with the family, and my daughter's
friend who's seventeen.
Speaker 7 (02:30):
She goes, Netflix is buying Water Brothers.
Speaker 6 (02:32):
I mean, this is just one of those things that
just is shocking to everybody, but particularly to people that
work in Hollywood.
Speaker 7 (02:38):
It's been a really tough few years.
Speaker 6 (02:40):
We've seen, you know, so much consolidation in the industry already,
and job losses and movies and TVs shows being shot
overseas and strikes and just the you know, the promise
of another big merger like this. It's just, you know,
people are really unhappy and in shock.
Speaker 4 (03:00):
Chris Surah feeling it seems like if Paramount were to
acquire Warner Brothers this discovery, there will be more overlap
therefore more jobs at risk.
Speaker 3 (03:11):
Is that the Is that the correct way to think
about it.
Speaker 6 (03:14):
Yeah, although you know they both acquires in Paramount and
one of Brothers, they're trying to downplay, you know, the
job loss as part of it. Netflix did say they
looked at two to three billion dollars in annual savings.
Much of that basically in overhead, you know, redundant jobs.
But they were each trying to make the case that
(03:35):
their merger would be a little bit less worse.
Speaker 7 (03:37):
I guess you could say.
Speaker 2 (03:39):
Just a quick note here, we have a correction to make.
The Bureau of Labor Statistics will now publish the October
and November PPI data together in January. I mean, the
net effect is at the end of the day, Paul,
All this data will come out after the fed's meeting
this Wednesday.
Speaker 4 (03:54):
Hey, Chris Paramount owns the Paramount movie in television studio.
Warner Brothers are It's the Warner Brothers studio, is there, right?
Can you put those two things together there? From a
regulatory perspective.
Speaker 6 (04:07):
Well, what they're doing is they both said both Paramount
and Netflix have said they want to kind of maintain
the creative executives is working separately at Warner Brothers. Warner
Brothers has had a phenomenal TV business. One of the
issues for Netflix is that historically Netflix has produced just
stuff for Netflix. But they have said they, you know,
(04:29):
will continue the policy of Warner Brothers making shows for
other people, you know, and they do, you know, have
had a huge track record of that historically, so that's
one of the things. Paramount also has said it would
keep the Warner Brothers creative team together.
Speaker 4 (04:46):
I'm not sure I believe that I would argue just
from my own perspective, Chris, I'm I wonder what the
folks in la are thinking. This is kind of a
more of a must have for Paramount sky Dance versus Netflix.
It's nice to have. Do you think that's accurate?
Speaker 6 (05:05):
Yeah, I you know, I think if you just look
at the public commentence from the two Netflix co CEOs,
you know, Greg Peters was initially kind of dismissive of
media mergers and was really paring cold water on this idea.
Speaker 7 (05:17):
So I think that the idea that Netflix is.
Speaker 6 (05:20):
That all in uh is, you know, is definitely a
legitimate one. Uh, you know, Paramount, I think, you know,
Michael Maffat Nathanson put out of you know something over
the weekend saying, and I think this is true. Netflix
has been the winner historically, and so if you want
to find a home, best home for your you know,
(05:42):
outstanding intellectual property, Batman, Harry Potter, Game of Thrones, on
and on, you know, they're the ones that are going
to get it all around the globe and invested in
all that. Putting two struggling companies together is it raises
more issues. It's it's everyone always sort of seems to
suggest that and almost any industry, but it doesn't always
translate into outperformance.
Speaker 2 (06:04):
Chris, this deal, no matter who wins out, Netflix or
Paramounts guidance will take a while to resolve. There's going
to be legal challenges there. It's gonna be anti trust
regulators looking into it. What does that mean that long
lead time mean for Warner Brothers is ability to just
do business and be the best performing studio it can be.
Speaker 5 (06:23):
In the meantime, it hurts it.
Speaker 6 (06:25):
I mean David's ask on footoo a note last week
the CEO of Warner Brothers saying, everybody just focused on
your work and listen to your business leader.
Speaker 7 (06:32):
This isn't gonna This is.
Speaker 6 (06:33):
Going to take a while, but you don't even have
to look very far or very long to find out.
If you remember, you know, the challenges AT and T
had when it bulable Warner Brothers a few years ago.
There was an extended there was a lawsuit by the
Justice Department really extended time to.
Speaker 7 (06:47):
Close that deal.
Speaker 8 (06:48):
Uh.
Speaker 6 (06:49):
You know, many people believe that it held the company
back in terms of you know, launching its own streaming
service and you know, investing in the business. You know,
I I don't see Warner Brothers core business helped by
an extended regulatory review that really either bitter Paramount or
Netflix would face.
Speaker 3 (07:10):
Stay with us. More from Bloomberg Intelligence coming up after this.
Speaker 1 (07:16):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Applecarplay and Android Auto
with the Bloomberg Business App. Listen on demand wherever you
get your podcasts, or watch us live on YouTube.
Speaker 4 (07:31):
All Right, the Warner Brothers Discovery deal just got a
little bit hotter here today we have an over the
top hostile bid from Paramount, sky Skydance, whatever they're called
these days.
Speaker 3 (07:41):
That is for the entirety of the company. This is
going to come down to regulatory hurdles. That's going to
be one of the key key issues.
Speaker 4 (07:47):
So for that return to generation covers all the antitrust
stuff here for Bloomberg Intelligence, Jen, does one potential buyer Paramount,
sky Dance or Netflix, does one have a clearer path
to regulatory approval.
Speaker 9 (08:00):
I think absolutely. I think Paramount has a far clearer
path to approval. I mean, if you just think about
them in terms of the streaming overlap, and when I
talk about streaming, I am talking about a narrow market
for just streaming services and not a broader market that
might include YouTube. They are much smaller than Netflix, and
so when you combine HBO Max with Paramount Plus versus
combining HBO Max with Netflix, it creates far less of
(08:23):
a problem. You know, and looking across at the creation
of original scripted content, let's say that's a market that
the Department of Justice looks at. Again, the combination is
smaller than the combination of Netflix with Warner. And then
you have the added cable channels. So Paramount has cable channels,
Warner has cable channels. Netflix would not be buying those.
So that is an issue that arises in the Paramount
(08:45):
situation and not Netflix. But I do think if there's
any problem there, that's easily resolvable. So in my mind,
Paramount's the better buyer from an antitrust perspective.
Speaker 2 (08:53):
I'm curious about the termination fees involved in this deal.
Netflix says that will pay a termination fee of five
billion dollars of the deal fails. That seems really large.
Paramount Skuidances offer includes a five billion dollar termination fee.
Just talk a little bit about the amounts involved there
and what the fact that well, at least to me,
it seems pretty large, says about what each side thinks
(09:14):
of the possibility of this going through or not.
Speaker 9 (09:16):
Relatively speaking, it's a very large termination fee. You know,
you usually see these as two percent or three percent
of the purchase price, and Warners had to do that
when they negotiated this. I mean, there is a high
risk right that a Netflix deal would ultimately not get done,
that they could get sued in court, that they could
lose in court, it would break up.
Speaker 3 (09:32):
So they need to be.
Speaker 9 (09:33):
Protected because their business is just frozen for two years practically,
and it does impact a seller's business right to kind
of be in limbo that long. And that's what the
termination fee is meant to do. Now, I think they
have far less of a problem with Paramount, but you
never know, and so I think to protect themselves, Warner
would have wanted to work that in and Paramount wants
(09:54):
to give that kind of insurance in case there's some
problem there too.
Speaker 3 (09:58):
Now, okay, so what are the next step?
Speaker 4 (10:00):
So here, if I'm the board of Warner Brothers Discoverer,
do I have to respond to this thing?
Speaker 9 (10:06):
Well, Paramount it's a hostile takeover, so they're going against
the board's wishes.
Speaker 5 (10:11):
Basically, we know what the board wants.
Speaker 9 (10:13):
The board seems to prefer Netflix, even with all the
anti trust risk it brings. So now it's just going
to depend on what happens here as they go forward
and they solicit the shareholders. I think the deal that
would get done more quickly and has the surest path
would be the Paramount deal. So if Warner's interested in
getting something closed within the next year, I think Paramount
(10:35):
would be the company that they'd go with. I don't
see them getting a Netflix deal closed in the next year.
Speaker 2 (10:40):
Let's talk about the politics part of this. Axios is
reporting that Jared Kushner is helping to finance Paramount's bid
for Warner Brothers Discovery, and that Axios is citing a
regulatory filing on this Kushner financing bid. Does that put
it in a better position? Because Larry Ellison has a
good relationship with President Trump, Jared kush Or, the president's
(11:01):
son in law, is involved here, even as Larry Ellison
tells other media that if he feels that the deal
was inherently biased towards Netflix.
Speaker 9 (11:09):
Well, I would say if things were conventionally done, then
it shouldn't. It should be all about anti trust. It
should be the analysis the economists and their assessment of
the markets and the impact on the markets. But in
today's day and age, there is an impact from politics,
and the administration does seem to kind of micromanage these decisions,
(11:30):
and so I think politics is a significant factor here,
right next to anti trust. And from what you just
told me and what we've read, it seems paramounts the
favorite bidder by this administration as well.
Speaker 3 (11:40):
Stay with us more from Bloomberg Intelligence coming up after this.
Speaker 1 (11:47):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am. He's done on Apple, Cocklay and
Android Auto with the Bloomberg Business app. Listen on demand
wherever you get your podcasts, or US Live on YouTube.
Speaker 2 (12:02):
One thing we didn't get to is the credit market.
And of course we've seen yields, we've seen spreads really
really tight, even as we've seen a lot more supply
come into the market because of all the spending on AI,
and there's going to be even more spending in twenty
twenty six. So let's bring in right now Steven Flynn,
he's a senior credit analyst at Bloomberg Intelligence, and Stephen,
(12:22):
we want to really dig into Netflix because as part
of this bid for Warner Brothers Discovery, it's going to
be getting a fifty nine billion dollar bridge loan, the
biggest investment grade bridge loan in a while, and of
course that means eventually that will be replaced by corporate
debt as well. How are you thinking about what kind
of market impact that will have.
Speaker 10 (12:42):
Well, first of all, it's sort of that Netflix is
a very strong credit So Netflix has a significant market cap.
It's you know, four hundred and twenty five billion dollars
or so. The company is growing, revenue, growing evada, growing
free cash flow. It's net leverage ratio is very modest,
talking zero point four turns of leverage.
Speaker 8 (13:00):
A company generates a ton of free cash flow.
Speaker 10 (13:02):
So Netflix is a very strong credits rted A three A,
so they have the ability to borrow. So within that
fifty billion dollars that they have as acquisition debt. There's
been a reporter that's twenty five billion dollars will likely
be bonds, and there remain will probably be a combination
of term loans and maybe some other borrowing. And while
twenty five billion sounds like a lot, if we think
about Netflix bonds in the market right now, they're relatively scarce.
(13:24):
Right So if Netflix is part of communications, you think
about borrowers like a teen T Verise and Comcast T Mobile.
Those companies have huge debt loads and are large parts
of the investment grade corporate bond indict. So Netflix is
relatively small, So I think that there could be a
lot of interest in Netflix bonds, So I don't think
it's a problem at all.
Speaker 4 (13:42):
And then the news of the day here Paramount coming
back over the top of the hostile bid Warner Brothers Discovery.
They're talking about fifty four billion dollars of debt commitments
from Bank of America, City and Apollo. So again, your
market is going to have a lot to say about
how this deal gets done, isn't it.
Speaker 10 (14:00):
Yeah, this is a completely different story, right So Netflix,
of sorry, paramounts guiddances on the edge of investment grade.
So the investment grade by excuse me, by Moody's and Fitch,
High yield by S and P. If you you know,
they're talking about the combined company could have about one
hundred billion dollars a debt.
Speaker 8 (14:17):
So if we look at the debt loads at.
Speaker 10 (14:19):
Both paramounts, Guidance and Warner Brothers, you're talking about an
incremental fifty billion dollars.
Speaker 8 (14:23):
You just they have a you know, fifty four billion
dollar commitment.
Speaker 10 (14:27):
You're talking about pro form net leverage over five times,
and that's including synergies, right, so that's going to be
much tougher. You're talking probably a good chunk of that
will be high yield, and that is a lot for
the highield market. Now, the highal markets very strong. Issuance
is up, yields are down. I think you know it's
the highal market is very favorable. But this would probably
(14:49):
be the biggest name in high yald. The biggest name
highyield right now is Charter, So Charter unsecured bonds are
the biggest name. There's about twenty five billion dollars market
value for Charter bonds in the Bloomberg Highyield in it
depending on how they set it up but this could
easily become you know, the biggest name or close to it,
So that makes it much tougher.
Speaker 8 (15:07):
Now we have to see all the details.
Speaker 4 (15:08):
But so if I'm a shareholder Warner Brothers Discovery a
the regulatory aspect which Jenery just walked us through.
Speaker 3 (15:15):
But now I've got the sitting there.
Speaker 4 (15:16):
If I'm an equity shoulder, do I want to be
sitting there with a balance sheet of five times leverage?
Speaker 10 (15:23):
Well, if you're a Warner brother shareholder, you're getting cash, right,
so you could only But if you're a paramount shaholder, yes,
you have to be concerned that the pro form of
company will have a significant amount of leverage.
Speaker 8 (15:33):
And that has a big name in high yield.
Speaker 10 (15:35):
But you do you know they also have big backers
behind them, right between the Allison family and Redbird Capital.
Speaker 3 (15:41):
Pramon scot Dance stock is up five percent today.
Speaker 5 (15:44):
Yeah, well, I mean, but this is not going to
end anytime soon. This is going to drag on.
Speaker 2 (15:47):
So Stephen, media companies being heavily indebted, what do we
know from about the appeal of this sector to investors?
I mean, I think about Warner Brothers Discovery when it
came into being. It took on a lot of David
Zasov spent years trying to pair that down.
Speaker 8 (16:03):
Yeah, and he was unsuccessful.
Speaker 10 (16:04):
Right, the company was junked and they ended up doing
a massive tender offer where they put in a lot
of secure debt ahead of the existing bonds and then
use that to tender for existing bonds at a discount
to par So bondholders really got hurt then, and then
the company, you know, was junked.
Speaker 8 (16:18):
So it's been tough.
Speaker 10 (16:19):
It's you know, when you think about communications in general,
people feel a lot more comfort. We're lending to more
traditional communications companies like telecom cable, you have hard assets,
it's a little bit easier to lend to.
Speaker 8 (16:30):
It is a little bit tougher in media. So this
would be a large name for media.
Speaker 3 (16:33):
What's paramounts?
Speaker 4 (16:34):
Does Paramount have a view like does a marketplace have
a view on powamount?
Speaker 10 (16:40):
Well, Paramount, it's not a very large name and it
is on the cusp of IG. It trades very wide
for IG, but that's because it's on the cusp and
there's fears of a certain deal like this. Now there's
two sides, right, you have the positive of the Elson
family and Redbird coming in and saying, hey, there's support there.
You know, I know we have somebody that's that backing us.
(17:00):
Things can't get too bad. And the flip side, you know,
the business is challenged, and you know there is the
risk of.
Speaker 4 (17:06):
High yield I mean back of my date for this,
this kind of deal and your higeld I mean high
yield market. Five phone calls, I would I would get
a sense of whether.
Speaker 3 (17:14):
The deal could get done. Is it still like that today?
Speaker 6 (17:16):
Yeah?
Speaker 8 (17:17):
Sure, if you call the right people, that's right.
Speaker 3 (17:18):
And I knew the people to call, and they would say,
I don't think so, Paul, I don't think we can
get this.
Speaker 11 (17:23):
You know.
Speaker 2 (17:24):
Well, speaking of the right people, Jared Kushner is part
of this paramount hostile deal bid for Warner Brother's Discovery
through Affinity, the firm that he runs. So there's all
kinds of political considerations as well.
Speaker 5 (17:36):
How do you anticipate.
Speaker 2 (17:39):
Warner Brother's Discovery bonds to trade in the meantime, I mean,
what does that look like?
Speaker 10 (17:42):
Well, they've been very volatile, right, So if you go
back a couple of months ago when they got jumped in,
there was the big tenor offer of the bonds were crushed,
they were chart trading at large discounts to par. Then
they've had a nice run over the last couple of
months with all the speculation of being bought out. Now
the Netflick Flicks deal happened and the existing bonds appear
to be left behind with global networks business which is
somewhat deteriorating. So the mons traded off a little bit
(18:04):
on Friday and then now coming in with having Ellison
in Redbord behind you, that's giving a little bit more
of a left but they're likely to remain very volatile.
Speaker 3 (18:13):
Stay with us. More from Bloomberg Intelligence coming up after this.
Speaker 1 (18:20):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Apple, Cocklay and Android
Auto with the Bloomberg Business app. Listen on demand wherever
you get your podcasts, or watch us live on YouTube.
Speaker 2 (18:35):
IBM buying conflent for nine point three billion dollars in
cash or eleven billion dollars if you include debt on
our Agrana is Bloomberg Intelligence's technology analysts and he joins
us now, So on rag, what can you tell us
about how this fits in with IBM's ambitions, in particular
it's AI ambitions, which it's really been repositioning as business around.
Speaker 11 (18:53):
ViBe's done a very good job since the acquisition of
red Hat. Not only did they pivot and move towards software,
which is a much higher margin business, they actually have
margin improvement because the gross margin of those businesses is
very high. Since then, they've bought a number of companies
Harshi Corp, Appto and now Confluent. The big thing what
we want to think about over here is enterprises do
(19:17):
not always go with either AWS or Microsoft. They do,
you know, look at open source as a way of
building their infrastructure. Confluent specializes in open source streaming data platform,
which is when you are looking at real time data,
whether it is you know, something that comes from a
telemetric device or even transactions that are happening at a
(19:40):
retailer or a bank, you can ingest that data directly
into your system and then make sense out of it. Now,
that's going to be helpful as enterprises infuse more AI
into their application. So strategically, smart move financially also smart.
Speaker 4 (19:55):
Red headline crossing the Bloomberg terminal the BLS to not
publish October PPI data, which I.
Speaker 2 (20:01):
Believe makes sense given that if I recall correctly, the
BILS already told us that it's not publishing October jobs
or CPI data either, right, So that's kind.
Speaker 3 (20:10):
Of what we heard from a lot of it at Connors.
We'll talk to Mike McKey about that. Yes, absolutely, Yeah,
that's coming up all right. IBM, this is as a kid.
Speaker 4 (20:17):
IBM was technology, that was the impitomy of tech technology.
Then the Internet came along and they kind of missed it,
so you didn't think about them a whole lot. Now,
if you put up a stock chart, over the last
five years, the S ANDP has compounded at about fifteen
percent per year. IBM over that timeframe twenty six percent
per year ANAG what's the what is the turnaround of
(20:39):
this aircraft carry over the last five years? Now?
Speaker 11 (20:42):
As I said, I think it is the acquisition of
red Hot. I think the CEO has done a very
good job of blending that particular you could say, operations
within their services platform, because when you think about the
IBM prior to that, it was very services heavy. That's
a business that has forty fifty percent gross margin, not
as profitable as software businesses. By being open, by going
(21:04):
out and buying software businesses, their financial profile has changed,
their cash flow has changed, and I think it's more
stable in nature. They're still not at a point that
their sales growth is going to be in double digits,
but they are inching towards their target and it may
be you know, two to three years before they get there.
Speaker 2 (21:21):
So, Honor rog what's interesting about this particular acquisition is
IBM is definitely making inroads or greater inroads into AI,
but this is not a data center driven acquisition.
Speaker 5 (21:31):
What do you think that means in terms of the next.
Speaker 2 (21:33):
Stage of M and A that we're going to hear
from the tech industry when it comes to taking advantage
of opportunities in AI, but not necessarily buying AI data centers.
Speaker 11 (21:43):
You see, everybody has their own strategy what they are
focusing on. IBM luckily, and it's good for them that
they don't want to be in that, you know, a
capital intensive heavy data center business. Because this is a
company that generates let's say fourteen fifteen billion in free
cash flow. They can't go out and buy another day
expand into a data center space where the capital investments
(22:03):
is multiples of that. They are doing the smart thing
of buying software companies that are not capital intensive heavy.
When you are going out and creating a new application,
you know the raw material You need the raw materials
to create or embed that. And that's where they are
focused on and I think for what they do, it's
it's a very smart place to be in.
Speaker 1 (22:24):
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weekday ten am to noon Eastern on Bloomberg dot com,
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