Warner Bros. Discovery rejects Paramount’s hostile bid: Issues at stake, next steps

Netflix welcomed the announcement on Wednesday morning, saying that “the agreed-upon transaction with Netflix is the right deal, with the right partner, at the right time.”

WBD’s shareholder vote on the upcoming sale is expected to happen in spring or early summer, while Netflix’s deal to merge with Warner Bros, if confirmed, is expected to be completed in 12-18 months. Here is what to know.

A tale of two deals

In June, WBD announced its intent to split into two businesses and reverse its three-year merger: Warner Bros., would focus on TV, the HBO film studio and HBO Max streaming service, and Discovery, would comprise the Discovery network of legacy TV channels.

Amid cable TV’s continued struggle for relevance in the streaming era, CEO David Zaslav said that the split would give WBD’s brands the “sharper focus and strategic flexibility they need to compete most effectively in today’s evolving media landscape”.

In October, WBD’s board announced that it was open to a partial or complete sale of the company. Thus began weeks of deliberations with multiple interested entities, which culminated on December 5 when Netflix announced that it had entered an $82.7 bn agreement with WBD to acquire the Warner Bros. business (not Discovery). The acquisition would take place after the split, likely in Q3 2026.

Paramount Skydance too had been in discussions to acquire WBD. After losing out to Netflix, on December 8, the conglomerate mounted a hostile takeover bid to acquire the entire WBD business.

A hostile takeover involves the would-be acquirer doing one of three things: directly approaching the acquiree company’s shareholders with a tender offer to convince them of the merits, initiating a proxy fight to replace board members with persons amenable to a takeover bid, or buying up the company’s stock in the open market.

Paramount chose the first route, sending in an unsolicited all-cash $30 per share offer to WBD’s shareholders. Paramount CEO David Ellison said this offer is worth about $18 bn more in cash than the competing cash-and-stock bid from Netflix, priced at $27.75 per share.

Paramount rebuffed

In its letter to its shareholders on Wednesday, WBD claimed that Paramount’s offer was misleading and illusory, and did not address concerns it had raised over several weeks of deliberation leading up to December 5.

One contention was that Paramount’s $30-per-share cash offer did not include a “full backstop” or a complete guarantee by the Ellison family, led by Donald Trump’s ally and the billionaire co-founder of Oracle, Larry Ellison. A “full and unconditional financing commitment” from the Ellison family had been a key WBD requirement for a potential agreement to be realised.

Instead of offering a personal guarantee, Ellison backed Paramount Skydance’s financing agreement through a revocable trust. WBD objected to this, saying there needed to be a secured commitment by a controlling stockholder, while the trust’s assets and liabilities are not publicly disclosed, allowing Ellison to potentially modify its assets at any time. This posed a risk to WBD’s shareholders, it wrote on Wednesday.

Also of concern was Paramount’s weak financial position. Paramount Skydance is valued at around $15 billion and has been awarded a credit rating merely a notch above “junk” status by two leading ratings agencies, WBD noted in its letter on Wednesday. Paramount’s debt levels being at par with its equity “reflect a risky capital structure that is vulnerable to even potentially small changes in the PSKY or WBD business between signing and closing,” WBD said.

Paramount’s proposal hinged on a complex funding structure involving multiple financing partners to fund the $40 billion equity check, including Trump’s son-in-law, Jared Kushner (who has since pulled out of the agreement) and Middle Eastern sovereign wealth funds. The $54 billion in debt would be financed by partners including Bank of America, Citigroup and Apollo Global Management.

In contrast, the Netflix merger is a “binding agreement with enforceable commitments” made by a public company with a market cap exceeding $400 bn, WBD said. This agreement necessitated no equity financing or robust debt commitments.

While WBD’s deal with Netflix prohibits it from soliciting other offers, Paramount could raise its bid to WBD, forcing Netflix to counter. That said, WBD would have to pay Netflix $2.8 bn if it were to accept an improved Paramount bid. Alternatively, Paramount could urge WBD shareholders to vote against the Netflix deal.

Two other factors could influence the outcome of the WBD sale.

• Any deal for a potential sale would attract the scrutiny of the Department of Justice’s (DoJ) Antitrust Division. The deal with Netflix potentially monopolises streaming services while granting the streaming giant its own movie studio and a share of the video game and consumer products business. In contrast, a deal with Paramount would appear less objectionable given its smaller market share in the streaming business.
• Donald Trump has promised to be “involved” in the final decision. Larry Elisson’s relationship with Trump could have an impact on how the DoJ assesses any deal with Netflix.

“The notion that the president might have already picked a winner and a loser before any investigation has even begun is highly problematic and presents [Gail Slater, the DoJ head] with a formidable challenge,” Bill Baer, who led the antitrust division during the Obama administration told The New York Times.