Warner Bros. Discovery Decides Against Paramount’s Recent Offer, Finding It Lacks Appeal Compared to Netflix Deal

The board of Warner Bros. Discovery (WBD) has advised shareholders to reject an amended takeover offer from Paramount, describing it as “inferior” to their existing agreement with Netflix. The board cited higher costs, risks, and uncertainties associated with the Paramount bid.

In a letter to shareholders released Wednesday morning, supported by an SEC filing, the board stated, “Your Board negotiated a merger with Netflix that maximizes value while mitigating downside risks, and we unanimously believe the Netflix merger is in your best interest. We are focused on advancing the Netflix merger to deliver its compelling value to you.” The decision was made unanimously during a meeting held on Tuesday.

WBD is currently poised to sell its studios and streaming assets to Netflix for a combination of cash and stock valued at $27.75 per share. In contrast, Paramount’s bid stands at $30 per share in cash for the entire company.

WBD emphasized the potential risks associated with a Paramount deal, estimating that failing to move forward could result in significant costs totaling $4.7 billion. This includes a $2.8 billion termination fee payable to Netflix, a $1.5 billion fee related to a failed debt exchange, and approximately $350 million in additional interest expenses. This scenario could significantly diminish the net cash from PSKY’s $5.8 billion termination fee, leaving only $1.1 billion, which the board argued “would not come close to helping WBD address the likely damage to our businesses.”

In comparison, the Netflix transaction involves a $5.8 billion breakup fee but carries none of the costs outlined for a Paramount deal, according to the board. “The risk-adjusted value of the [Paramount] Offer is not superior to the Netflix Merger,” the board asserted.

Leading the charge at Paramount, David Ellison’s team believes it has a smoother path to regulatory approval for its deal, anticipated to close within 12 to 18 months. However, WBD, under CEO David Zaslav, disagrees, asserting that there is “no material difference in the level of regulatory risk” between the two transactions. “Regulatory risk is not a material differentiating factor between the Netflix Merger and the Offer, which requires a number of global regulatory approvals in order to be completed,” the board said.

Paramount has submitted six offers, becoming more aggressive in approach with its last two directed to WBD stockholders, who have until January 21 to tender their shares. While Paramount claims to have addressed WBD’s concerns, WBD disputes this, stating, “PSKY has repeatedly failed to submit the best proposal for WBD shareholders despite clear direction from WBD on both the deficiencies and potential solutions.”

The board criticized the substantial debt financing necessary for Paramount’s offer. “PSKY is a company with a $14 billion market capitalization attempting an acquisition requiring $94.65 billion of debt and equity financing, nearly seven times its total market capitalization,” WBD noted, adding that Paramount plans to incur over $50 billion in additional debt through various financing partners.

WBD further remarked that the proposed transaction resembles a leveraged buyout, potentially the largest in history, and involves significant risks due to reliance on lenders. “The transaction PSKY is proposing… poses materially more risk for WBD and its shareholders when compared to the conventional structure of the Netflix merger,” the board explained.

Paramount’s latest offer includes a $40.4 billion personal financial guarantee from Larry Ellison, co-founder of Oracle. Additionally, the proposal entails debt financing arrangements with Bank of America, Citi, and Apollo Capital Management for up to $54 billion.

“PSKY already has a ‘junk’ credit rating and negative free cash flows, heavily reliant on its legacy linear business,” WBD continued, outlining concerns about fixed obligations that could strain its financial health. The proposed restrictions on WBD’s operations until closing, they argued, could hinder its business and lead to potential complications if the deal does not proceed.

In contrast, WBD highlighted the advantages of partnering with Netflix, pointing to its market capitalization of approximately $400 billion, an investment-grade balance sheet, an A/A3 credit rating, and an estimated free cash flow exceeding $12 billion for 2026. The agreement with Netflix would also enable WBD to operate with greater flexibility until closing.

WBD noted that a deal with Paramount would hinder plans for a spinoff of Discovery Global, limiting financial flexibility and restricting WBD from undertaking critical initiatives for up to 18 months if the offer failed to close.

Furthermore, WBD positioned Discovery Global as a company with a more substantial market presence compared to Comcast’s recently spun-off Versant, asserting, “Discovery Global’s business has greater scale and profits, with a geographically diversified footprint and strong international presence.”

In a concluding note, WBD expressed concern over Paramount’s aggressive tactics, stating that “PSKY’s credibility is undermined by breaches of its contractual obligations.” The board cited past violations of a non-disclosure agreement as evidence of Paramount’s unreliability as a counterparty, raising questions about the likelihood of completing any proposed deal under the terms outlined.