Deutsche Bank told clients on Friday that the proposed deal between Warner Bros. Discovery and Paramount Skydance would create a potent global streaming competitor, after Warner's board concluded that PSKY's $31-per-share proposal is a superior offer.
In the same client note, analyst Bryan Kraft raised his price target on Warner Bros. Discovery to $31. At the same time, Kraft lowered his rating to Hold, citing what he described as "limited upside potential" for the shares at the new target.
Kraft described the PSKY approach as "a Superior Proposal relative to Netflix's existing offer of $27.75 per share for just Warner's Streaming & Studios businesses." That comparison underpins Deutsche Bank's view of the strategic significance of the PSKY bid.
The bank said Netflix's decision not to match the higher PSKY bid and to step away from the transaction was not unexpected, given the bank's assessment that Warner and PSKY were likely to reach terms. Deutsche Bank's note referenced reporting that Netflix co-CEO Ted Sarandos met at the White House to discuss the proposed transaction.
Deutsche Bank said it had expected that the tenor of Mr. Sarandos' meeting or meetings might affect whether Netflix would increase its offer. The bank added that it remains unclear whether those meetings had any bearing on Netflix's final decision to forgo a higher bid.
On competitive dynamics, Deutsche Bank stated that a combined PSKY-Warner Bros. Discovery would represent "a formidable competitor to Netflix in the U.S., and well-positioned to realize its global growth ambitions." The analyst argued the merged entity would possess "all the content and IP needed for success at scale."
Finally, Deutsche Bank judged that the proposed transaction should clear regulatory review "with minimal friction," indicating the bank does not currently see major antitrust or regulatory obstacles based on the information in its note.
Context and implications
The bank's assessment links the board decision, the competing bids, and executive-level outreach into a view that a PSKY-Warner tie-up would materially change the competitive landscape. At the same time, the firm signaled limited near-term upside for Warner Bros. Discovery shares by moving the price target and trimming the rating.