Warner Bros (WBD.US) options trading "hot speculation on short term": Paramount Sky Dance (PSKY.US) launched hostile takeover bid, adding uncertainty to the prospects of merging with Netflix.

After Paramount Skydance announced a hostile takeover of Warner Bros. Discovery at a cash price of $30 per share on Monday, options trading for Warner Bros. stock saw the second busiest day ever. However, a clear sign was that traders did not bet on the company's long-term prospects. The announcement stated that Paramount's bid corresponds to an enterprise value of $108.4 billion. Existing shareholders need to decide whether to hand over their shares by January 8 of next year, unless the takeover offer is extended. Just last Friday, Netflix announced it would acquire Warner Bros. for $27.75 per share (total enterprise value of approximately $82.7 billion), including its film and television production divisions, HBO Max, and HBO. Netflix stated it would maintain Warner Bros.'s current operating model; the total equity value of the transaction is approximately $72 billion. Paramount Skydance was the first to extend an olive branch to Warner Bros. Discovery. Paramount Skydance had previously made a bid of around $60 billion, but it was rejected by the Warner Bros. Discovery board in October, prompting them to initiate a formal sale process. Paramount Skydance planned to acquire all of Warner Bros. Discovery's assets, with the offer price increasing from an initial $20 per share to $23.5 per share, and the latest acquisition proposal being $24 per share, 80% cash and 20% stock, but it was rejected by Warner Bros. Discovery citing "undervaluation of the company." In the latest bid, due to the different deal structure, Paramount insisted that its bid was better than Netflix's, hence directly proposing the acquisition to Warner shareholders. Netflix has no intention of purchasing Warner Bros. Discovery's television network business, including CNN, TNT Sports, Discovery Channel, etc. Therefore, Warner Bros. Discovery will proceed with the split first. Paramount stated that its proposal to acquire all outstanding shares provides shareholders with an additional $18 billion in cash compared to Netflix's proposal. Insiders say that within Warner Bros., the actual value of Netflix's offer is $31-32 per share, as shareholders will continue to hold shares in both companies after the split. The Warner Bros. Discovery board recommended a deal with Netflix over Paramount based on a lack of confidence in the future of the cable television network businessthis business valuation lacks fundamental business support and carries a heavy leverage burden for the company. There are indications that options traders lack confidence in who will ultimately emerge as the winner of the battle over the future of Hollywood. So far, only a small number of put options with a strike price of $27 expiring in January 2027 have been successful, while contracts expiring this month or next are valued in the millions. The busiest day of options trading for Warner Bros. dates back to September of last year. According to options data, total options trading volume on Monday was nearly 200% higher than the 20-day average, reaching over 2 million contracts. Trading activity seems to be driven by strong retail trading flow, while bulk trading data shows only a few large institutional trades. One institutional trade involved a bullish options combination, which would profit if Warner Bros.'s stock price stays above $24 but below $28 by January 16, up 4.4% at the close of Monday at $27.23. Whoever successfully acquires Warner Bros. will face a series of antitrust obstacles. US President Trump, Senator Elizabeth Warren, and the Writers Guild of America have raised potential antitrust concerns about the acquisition. Trump expressed potential antitrust concerns about Netflix's plan to acquire Warner Bros., pointing out that the combined entity's market share could pose problems. Warren referred to Paramount's move as a "level 5 antitrust alarm."