Warner Bros shares climbed sharply this week as event-driven hedge funds ramped up positions in anticipation of a bidding war between Paramount and Netflix, with merger arbitrage managers suggesting that at least one bidder is likely to raise its offer, according to a report by the Wall Street Journal.
The firm’s stock rose around 4% on both Tuesday and Wednesday, trading close to $30 per share – roughly in line with Paramount’s $30 all-cash hostile tender and just below the implied valuation of Netflix’s cash-and-stock proposal. The tight spread indicates that hedge funds expect a near-term deal and potentially improved terms, rather than discounting for regulatory hurdles or long closing timelines.
Paramount CEO David Ellison met with major Warner shareholders in New York this week, seeking support for his firm’s hostile bid and signalling that the $30 offer is not Paramount’s “best and final.” Several attendees left the meetings convinced a higher bid is likely, according to people familiar with the discussions.
Event-driven funds have been active in the trade, with many pointing to Warner’s share price as evidence of strong market conviction that one or both parties will sweeten their offers. Polymarket prediction markets currently assign a roughly even 42% probability to either the Paramount or Netflix deal closing by June 2027, with only a 16% chance of no transaction.
Paramount launched its hostile tender on Monday after Warner opted to sign with Netflix. Warner has until later this month to decide whether to reverse course, but Ellison acknowledged to investors that such a pivot may be difficult given the board’s earlier rejection.
The deal dynamic is also drawing high-profile event investors. Long-time money manager Mario Gabelli, who attended the meeting, said he is “highly likely” to tender into Paramount’s offer, adding that he expects both bidders to raise prices.
For Netflix, a higher-priced contest could be challenging. The streaming company has lost around $100bn in market value since speculation about a bidding battle began, weakening the stock-linked component of its offer. Its shares closed Wednesday at $92 — below the level that begins to erode the value of its proposal.
Regulatory uncertainty remains a key consideration for arbitrage funds. Paramount argues its bid poses fewer antitrust risks, while Netflix’s offer is likely to attract close scrutiny from the Justice Department given its dominant market position.
