Streaming giant Netflix (NFLX 2.89%) just announced its largest acquisition ever. The company plans to acquire certain assets owned by Warner Bros. Discovery (WBD +3.36%) for $72 billion.

This is somewhat uncharacteristic of Netflix, which typically relies on content it produces itself and licensing deals to feature content owned by third parties. So, here are the details of the deal and what Netflix’s investors should keep in mind.

A cash-and-stock acquisition

Netflix announced that it will acquire the HBO Max streaming service as well as the Warner Bros. film studio from Warner Bros. Discovery. The deal values the company at $27.75 per share, which implies a $72 billion equity valuation for the assets. The company will also assume $10.7 billion in net debt on Warner Bros. Discovery’s balance sheet.

Image source: Netflix.

The acquisition is a cash-and-stock deal. Warner Bros. Discovery shareholders will receive $23.50 in cash for each share they own, plus $4.50 in Netflix stock.

Netflix investors should be aware that the company is financing this deal primarily with debt. In addition to the $10.7 billion in net debt the acquired company brings, Netflix is taking on an additional $50 billion in debt to fund the purchase.

It’s also important to clarify that the television networks owned by Warner Bros. Discovery are expected to be spun off before the deal is finalized. This includes TNT and CNN, among other notable media outlets. Netflix clarified that it plans to keep operating the Warner Bros film and television studios, including theatrical releases of movies.

The acquisition brings some of the most popular TV and movie franchises in history into Netflix’s ecosystem. On the television side, this includes franchises like Friends and The Big Bang Theory, as well as HBO series such as The Sopranos and Game of Thrones. And it includes the Harry Potter film franchise, among many others.

What should investors do?

After the deal was announced, Warner Bros. Discovery shares rose by about 3% to $25.30 as of 10 am EST. However, the stock had already increased sharply in recent months, as a deal was widely anticipated.

It’s worth noting that this is still about 10% below the acquisition price, which seems fair considering the roughly one-year time horizon until the expected closing of the acquisition and the regulatory hurdles that still need to be cleared. So, Warner Bros. Discovery shareholders need to decide two things:

• Is it worth holding through the deal’s closing in pursuit of another 10% upside?
• Do you want to become a Netflix shareholder after the deal closes, or would you prefer to take the money and move on?

There’s no perfect answer to either question. If you’re a Netflix shareholder, the key question is whether or not you think the acquired content and assets justify the price being paid (and debt being taken on).