The bidding war may escalate! The market valuation of Warner Bros(WBD.US) acquisition offer is expected to increase again

According to the Tonghuashun Finance APP, traders speculate that the control battle for Warner Bros. Discovery (WBD.US) will prompt one of the bidders to increase their offer. The historic Hollywood studio’s stock closed slightly below $29 per share on Wednesday, after Paramount’s Sky (PSKY.US) indicated the possibility of raising its bid by at least $1 to $31 per share the previous day, briefly surpassing that level. Warner Bros. agreed last December to sell to Netflix (NFLX.US) at $27.75 per share, plus some of its cable networks such as TNT and CNN.

Since the bidding war erupted, Warner Bros.’ stock has never exceeded $30 per share, likely due to market concerns that the Netflix acquisition deal would face lengthy regulatory scrutiny and uncertainty over the valuation of cable assets. Meanwhile, Warner Bros.’ board has repeatedly rejected Paramount’s Sky’s offer of $30 per share.

On Tuesday, Warner Bros. received a revised proposal with some improved terms, and subsequently agreed to restart negotiations with Paramount’s Sky, signaling a turning point in the acquisition process. Boosted by this news, Warner Bros.’ stock rose 2.7%, about 7% higher than its lows two weeks ago, with market speculation that the bidding is not over.

Matt Osowiecki, portfolio manager at Water Island Capital LLC, which focuses on merger arbitrage, said Wednesday: “Based on today’s trading price and the price from a few days ago, it suggests that people believe the acquisition price for this asset is likely to exceed $30. If $30 is the maximum price you can accept, then the stock’s trading price wouldn’t be $29. It has to be lower to compensate for the time value of your capital.”

Oppenheimer’s event-driven analyst Michael Broudo stated that, according to the wording in Paramount’s Sky press release, the previously proposed $31 per share bid was not a “final offer,” so raising the bid to $32 per share seems to be a “reasonable estimate.”

Since September last year, Paramount’s Sky has been attempting to acquire Warner Bros., ultimately leading Warner Bros. to officially put itself up for sale. The company repeatedly increased its bid but was ultimately outbid by Netflix. Three days later, Paramount’s Sky launched a hostile takeover bid at $30 per share, and then revised the offer twice, each time responding to certain issues but never increasing the price.

Warner Bros. reached an exemption agreement with this streaming giant, allowing it to negotiate with Paramount’s Sky on the terms of its latest bid for a seven-day period before February 23.