Netflix to Buy Warner Bros. in $72 Billion Cash, Stock Deal

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1:59Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco. This is Bloomberg Tech coming up a historic media shakeup as Netflix agrees to buy Warner Brothers Discovery. Details on the$72 billion cash and stock deal throughout the hour. Plus, continued clash between the US and the EU on free speech as the European Union finds Elon Musk's X platform$140 million. And HPE's outlook disappoints on slower AI server deals. We speak to the CEO. Let's get right to it. Netflix buying Warner Brothers Discovery. The value of the deal,$72 billion. Warner Brothers Discovery shareholders set to receive$27.75 per share in cash and stock.

2:51The value of the deal or value of Warner Brothers, almost$83 billion when you take into account debt. This is going to go on for a while. The expectation is it could close within 18 months. A lot of questions, Caro, on the why and also about the price when you consider the bidding war that was going on for this name. And this is for streaming. This is for studios only. Earlier today, Ted Sarandon spoke on a conference call about this deal. Here's what he had to say. I know some of you are surprised that we're making this acquisition, and I certainly understand why. Over the years, we have been known to be builders, not buyers.

3:29We already have incredible shows and movies and a great business model, and it's working for talent, it's working for consumers, and it's working for shareholders. But this is a rare opportunity. that's going to help us achieve our mission to entertain the world and to bring people together through great stories. Bloomberg's Lucas Shaw, who leads Bloomberg's coverage in media and entertainment, joins us now. And Lucas, those exact words, builders, not buyers, was exactly what Greg Peters, the other co-CEO, said to you on a stage. But a few months ago, did it take you by surprise? By this point, no.

4:05It's funny that you ask that. I've spoken with a few different people at Netflix this morning, and they all asked me if I was surprised or shocked. And it's true that they've never done anything like this before. It represents a huge change for the business. It'll, you know, if this deal gets through, and I know we may get there, it'll double in size pretty much as soon as they add all these folks. But Netflix has always been a company where it kind of never say never. They say they're not going to do something and then they end up doing it. And it's been obvious over the course of the last two months, really since Greg's appearance at Screen Time, My confidence this would happen has increased bit by bit, including as people from Netflix told me that they were getting more and more serious about it.

4:44Lucas, I think there's a lot of reporting to do here on Bloomberg Tech, especially for the audience members that are hearing about this deal for the first time. What is Netflix proposing to do with Warner Brothers Discovery? What is Warner Brothers Discovery plan to spin out? Because there's an element that they'll have to divest or start new companies of some things. And we're reporting that in this bidding process, Paramount came in with a$30 per share offer. So it sounds as if Netflix had a lower offer than Warner Brothers Discovery went with. I'll take them in three, although I will say that the Warner offer or the Paramount offer was not technically higher, but I'll get into it.

5:25So the process is, assuming that this all continues as planned, Warner Brothers Discovery will spin off its cable networks, the CNN, TNT, TBSs of the world, sometime third quarter next year. They will then proceed with closing the sale of the rest of the business, which is the Warner Brothers Studio and HBO slash HBO Max streaming to Netflix. They expect that transaction will close in the next 12 to 18 months. So let's say sometime in 27. And then there will obviously be regulatory approval and all that, which could also drag on for some time. Depends on when that enters the equation. In terms of the value and all that, yes, Paramount offered$30 a share.

6:10Netflix was just shy of$28. But you have to remember that because Netflix is only buying two-thirds of the company, there is a value that is being applied to the business that will be spun off that you add on top of the Netflix bid. So a lot of whether the Netflix bid was more or less than Paramount depends on the value you assign to those cable networks. You know, people who are really skeptical and certainly folks I spoke with in the Paramount Orbit are like, those cable networks are worth nothing, maybe a dollar a share, maybe two. You know, Warner Brothers may argue it's worth four or five dollars a share, in which case the Netflix offer is actually higher.

6:46Bloomberg's Lucas Shaw, who leads all of our coverage of this industry at Bloomberg with the key details you need to know. Thank you very much. Let's get more on the deal and the potential resulting media landscape shakeup with John Klein, Hang Media co-founder. John, with respect, a veteran of the media industry in this country, former president of CNN, a serial founder of media companies, modern day media companies. Lucas talked about what happens next. And the expectation, I believe you share this view, is that this will go on for many months. There will be challenges along the way in the antitrust context.

7:24This is going to be a saga that plays out longer than Game of Thrones did. Because, you know, not only do you have shareholder issues, your questions potentially, but you've already got the creative community in Hollywood rising up. The Directors Guild wants to sit down with Netflix. The theater owners are worried that Netflix is going to severely reduce, you know, movies released in theaters. Overall, you know, it reduces competition for producers and writers radically. And then, of course, the biggest factor is going to be the political aspect. Not only does David Ellison's dad, Larry Ellison, who has funded the Paramount Takeover, have a close relationship with Donald Trump, who I think had been licking his chops at the idea of combining CNN with CBS News, which is already trying to veer a little more to the right.

8:21Right. But you have you have that in play. But then you've got Gavin Newsom, who's, you know, the entertainment economy drives so much job growth revenue in California alone that I'm sure he's going to get involved in this as well. So it's so so so buckle up and stay tuned. And maybe at the end of the day, you know, what WBD ends up with is the five billion kill value of this deal. We'll have to see. I mean, that's an extraordinary, of course, unwind value that they're offering, saying if this doesn't get through the regulators, we will hand you five billion Warner Brothers Discovery more than.

9:05But, John, I want to go back to how Netflix is already trying to front run this. They're already saying these are complementary strengths and assets. They're already saying there's going to be more choice, greater value for the consumer because you're going to get bundling and maybe a cheaper offering. They're saying this is a stronger entertainment industry because they're actually going to be leaning into theatrical releases. Do you buy any of that? Oh, I buy some of it. We just don't know how much consumers, how much more consumers are going to have to pay for this new and improved, bigger, better than ever, one big, beautiful streaming company.

9:36And so we'll have to see that. But bottom line, there are going to be fewer buyers for creative product. Also left begging in this, though, and I think it's really worth talking about, especially on a tech focus show. Netflix's biggest problem is not market share versus Amazon or Disney Plus or what have you. The bigger problem is YouTube. YouTube commands far more viewing time, almost double the viewing time that Netflix does right now. And Netflix has been busy trying to poach YouTube creators. But what's really happening in the entertainment industry as a whole is this flood of creator content.

10:24And this deal does nothing to address that. They could have spent far less money and bought a creator studio that could very well have a much larger impact moving forward than gaining some really great titles. I mean, the IP of Harry Potter and Friends, that alone is worth a lot of money. So what you're debating here is value, right? This is where Warner Brothers Discovery is trading. I'm just making a sort of mechanical observation. The share price is around$25 a share. Guys, give me Warner Brothers Discovery for a sec, please. The Netflix offer is$27.75 a share, which Lucas explained gets you basically two thirds of the business.

11:09You seem to be questioning the value. The shares aren't even trading at a kind of level that reflects two thirds of the business. I'm trying to do the math here on whether this is a deal that the market is saying, yeah, we think this is a fair value, a good value. I don't think the market has grasped the tidal wave that is being unleashed even as we speak and is only going to grow thanks to AI, which puts more tools into the hands of more creators. And so I think there's going to be a reckoning at some point, not this week, not maybe this year, over the next 12 months, but that's what's happening in the entertainment industry.

11:51So this could end up being looked upon as one of the last great old media deals. And it's ironic to call Netflix old media. But this and I'm not saying they're blind to the challenge of YouTube or the creator opportunity, but it's placing a value on something that used to have a lot more value than it is going to have moving forward. John, what's so great about you is because you're building Hang, which is all about Gen Z interacting with brands, because you built an AI business that you sold to Apple. You are in the new media, but you also did help run CBS and CNN. What does it mean for TNT, for CNN?

12:26What does even that part of the business have value? Do you think it has$2 value or in excess of? Was it a miss, therefore, for Paramount Skydance? I would be shocked if David Zaslav is not working the phones this morning, drumming up buyers for that entity that he's going to spin off. that he's been masterful at discerning what parts of his his empire are valuable to whom. And there is still value in those linear networks, let's say, to a versant, which just spun off its linear or is about to be officially spun off from from NBC. Sinclair and Nexstar, the massive and growing local broadcasters might be interested in becoming both.

13:10Right. So there are potential buyers out there. And David Zasov may have just figured, look, actually, the sum of the parts is actually greater than the whole if I do this right. John Klein, Hang Media. It's great to catch up with you again. Really appreciate it. Now, coming up as the EU, it finds Elon Musk's social media platform, X. And President Trump warns that European civilization could be wiped away. We sit down with the EU ambassador to the United States. You don't want to miss it. This is Bloomberg Tech.

13:48Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio.

14:29That's vanguard.com slash audio. All investing and subject to risk, Vanguard Marketing Corporation Distributor. This is Caroline Hyde. And I'm Ed Ludlow, inviting you to join us for Bloomberg Tech, a daily podcast focusing exclusively on technology, innovation and the future of business. Every weekday, we bring you the top headlines from the world's biggest tech companies. From finance to defence, AI to entertainment and from startups to the magnificent seven. We highlight the latest stories of the people and companies pushing the tech sector to new frontiers and the politics that shape global tech markets.

15:04We do this all every weekday, then bring you the most important conversations and analysis in our podcast. Search for Bloomberg Tech on YouTube, Apple, Spotify or anywhere else you listen. Join us every afternoon on your commute home and stay ahead of the tech news cycle. That's the Bloomberg Tech podcast. I'm Caroline Hyde in New York. And I'm Ed Ludlow in San Francisco. Subscribe today wherever you get your podcasts.

15:34elon musk's x social network has been fined 120 million euros that's 140 million dollars equivalent for violating an eu content moderation law that rule is already on a point of contention between the bloc and the white house when it comes to tech regulation joining us to discuss the Bloomberg Tech editor in London, Olivia Solon. What exactly was their issue in the EU? Which law did it go against? So the law is something called the Digital Services Act, which is a kind of new rulebook for digital platforms across Europe. And the main thing that the commission took issue with and that they find Elon Musk's ex for today was three things.

16:17There was the blue and the fact that it was changed to a paid feature where it used to be a sort of sign that someone was a kind of authority on something. Then they'd also like stonewalled giving researchers access to data. And they didn't set up an advertising repository that provided transparency to researchers either. So the fine today was kind of generally smaller than people had expected. But there are still some other issues that the commission's investigating, some more kind of serious issues around how it polices illegal content, election disinformation and its community notes system for content moderation.

16:56Bloomberg's Olivia Solo and our tech editor in Europe. Thank you very much. Earlier today, the U.S. ambassador to the EU, Andrew Puzda, accused the bloc of unfairly targeting the biggest American technology companies. His comments on Bloomberg Television came just moments before the penalty on X was announced.

17:38We're joined now by Jovita Naljovchena, the EU ambassador to the US here with us in San Francisco. And ambassador to start, I'd welcome your response to your counterpart, the US ambassador to the EU. Good morning. I think that what we are discussing right now, it's noncompliance case. And it was very well summarized as the question about their advertising, the access to the data of that, the access to the data for the researchers. and the deceptive mark of verified content. So I think that this is really very clear. Now X has a certain amount of days to prepare the plan of implementation, and we will take it from there.

18:26Broadly, Ambassador, U.S. officials, including the president, just believe that EU rules are too onerous on American technology companies. One of the reasons you're here is to attend an event about the U.S.-EU investment bridge. Secretary Lutnik has said if we're going to do some deals on certain tariffs and sectors, then something needs to happen and change with the digital rules that the EU has. Look, I think that EU has a right every time you have a business in Europe or the business in any other jurisdiction, you apply the rules which you were supposed to act. I think that this is our sovereign right to regulate.

19:05This is one element. Another element, some of the search engines, digital search engines which are functioning in Europe, some of the platforms have more users than U.S. has citizens in Europe. Some of the digital companies, American digital companies, have 30 to 50 percent of their turnover actually generated in Europe. So probably we're doing something good in Europe to make sure that American companies would feel welcome and actually see the benefit of being there. And I think that in general, be it trade, be it technological cooperation, be it cooperation on economic security or be both sides investments.

19:54I think that on the both sides of Atlantic, this is the thing that should be actually mutual beneficial. It should be beneficial for both U.S. and EU. Thus far, certainly the administration doesn't feel that, Ambassador. We're having a post from Marco Rubio talking about how this isn't just an attack on X. It's an attack on American tech platforms and on American people. As you sit down and meet across the board, you're going to an AI Impact pre-summit, for example. What other sorts of narratives you can come back with to say this isn't, this is the right due diligence, and indeed we embrace American tech companies in Europe?

20:29Well, as I mentioned, we have multiple American companies. We have multiple companies from other parts of Europe. We have European companies active in our 450 million of market. Everybody has full access to that. to that. And our regulations are never targeting one country or one specific company. It's really geographically neutral. What's interesting is you're here not just in San Francisco and visiting. You're then flying to L.A. to an event in Simi Valley that we're going to both be at, the Reagan Defense Forum. And what's interesting at the moment is there is a view in particular, a white paper that you, the EU, have put forward, really unveiling the commitment of the European Commission to spending on defense.

21:22What has the reaction been from the United States thus far? Have we seen the U.S. think that enough is being done? And can you get access to the right U.S. defense deck? Well, I think this is what actually was asked from us. And we were encouraged as the European countries to invest as much as possible to our security and defense. And this is what we're doing. NATO member states will NATO allies will spend five percent of their GDP. European Union is actually spending extra on top of of of that to make sure that we incentivize our defense industry back back home. All in all, it will be more than nine hundred billions in three to five years.

22:06I think that's a huge amount. And we are not really spending that to spend. We want to build our capabilities, which we have to step up. We don't have them now or not enough. And we are not planning to do that alone. The cooperation is extremely important. That's why we're here. We have an investment bridge event today with our European Investment Bank and looking for the core investment projects, not only the projects which would be beneficial only for us. I think that this is the idea. Ambassador, back in Brussels, the German chancellor is trying to secure a deal for immobilized Russian assets to help Ukraine.

22:51What is your sense of where a deal is, if it can be done, and what America's attitude is towards it when you speak to your counterparts? So, European Commission presented legal pathways, how the immobilized assets can be turned into the reparation loan and the loan for Ukraine with the long term commitment to support Ukraine, because we need to make sure to ensure our own security, which includes as well Ukrainian security. This is one element. And we believe that the country which actually wages the war have to face the consequences. But America is supportive of this effort. What is your sense?

23:33Well, this money actually is in a European account. It's in EuroClear. So I think that's the decision of the European countries. It's been wonderful having time with you. A decisive answer there, EU ambassador to the US, Jovita Linovciana. We thank you.

23:54Time now for Talking Tech. First up, one of China's leading AI chip makers, MoreThreads, jumped 425 % in its Shanghai trading debut. The startup drew strong investor interest in its IPO, with the retail portion oversubscribed by 2 ,750 times. Now, MoreThreads joins CameraCon, Huawei, Racing to fill a market void after NVIDIA was, of course, forced to exit China. Plus SoftBank, well, it's said to be in talks to acquire DigitalBridge, a PE firm with heavy investments in assets like data centers, according to sources. Now, the potential deal builds on SoftBank's efforts to take advantage of an AI-driven boom in digital infrastructure.

24:31A transaction could come together in a matter of weeks. And BlackRock's iShares Bitcoin Trust recorded its longest streak of weekly withdrawals since its debut back in January 2024. Investors yanked more than$2.7 billion from the ETF over the five weeks to November the 28th. The ETF is now on pace for a sixth straight week of net outflows. Ed. Our top story, Netflix buying a big chunk of Warner Brothers Discovery. This is what shares look like right now. This is a$72 billion cash and stock deal where Warner Brothers Discovery shareholders get$27.75 per share. I say a chunk because Warner Brothers Discovery will spin off cable networks.

25:10think CNN, think TNT, into a separate company before the transaction closes and goes through. But it means that Netflix, this kind of modern day streaming giant, is getting one of the oldest studios and developers of content in Hollywood. There is a lot of consideration around this deal. All I'll say, Caro, is that the parties have done some interesting things here as part of the bidding war. Meanwhile, in Washington, the proposed deal already facing some backlash. Democratic Senator Elizabeth Warren issuing a statement calling for the DOJ to enforce anti-monopoly laws, saying the Netflix Warner proposal is, quote, a nightmare.

25:51Let's bring in Bloomberg's Michael Shepard from Washington, D.C. There's the congressional review, and the Democrats will have some view on this, of course. But then it's probably more important to say, what is the White House view of this? What are policymakers' view on this? Well, the policymakers are really being egged on by Congress, and not just by Elizabeth Warren. We're seeing Republicans, including California's Daryl Issa, get into the act, and he is flagging his concerns on the consumer side. And really, it would fall to the Justice Department to conduct this review. Our expectation is that the agency's antitrust division will give this transaction the wire brush treatment.