The Warner Bros. Discovery board, as expected, advised shareholders to reject an amended takeover offer from Paramount, calling the bid “inferior” to a signed deal with Netflix given the higher costs, risks and uncertainties.
“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 board wrote in a letter to shareholders Wednesday morning backed by an SEC filing. It said the decision, taken at a meeting Tuesday, was unanimous.
Netflix, in its own statement, said it welcomed WBD’s continued commitment.
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“The WBD Board remains fully supportive of and continues to recommend Netflix’s merger agreement, recognizing it as the superior proposal that will deliver the greatest value to its stockholders, as well as consumers, creators and the broader entertainment industry,” said co-CEOs Ted Sarandos and Greg Peters. “Netflix and Warner Bros. will bring together highly complementary strengths and a shared passion for storytelling. By joining forces, we will offer audiences even more of the series and films they love—at home and in theaters—expand opportunities for creators, and help foster a dynamic, competitive, and thriving entertainment industry.”
The ball is now in back in the Ellisons’ court.
WBD has a deal to sell its studios and streaming assets to Netflix for cash and stock worth $27.75. Paramount is offering $30 a share in cash for the whole company.
WBD’s letter focused on the downside risk if a Paramount pact fell through with the board calculating that Warner would be on the hook for $4.7 billion — a $2.8 billion termination fee due to Netflix, a $1.5 billion fee for failing to complete a debt exchange, and incremental interest expense of about $350 million. Combined, that would lower the cash netted by PSKY’s $5.8 billion termination fee to just $1.1 billion in the event of a failed transaction, which “would not come close to helping WBD address the likely damage to our businesses.”
In comparison, the Netflix transaction also carries a $5.8 billion breakup fee but “imposes none of these costs on WBD,” the board said.
“The risk-adjusted value of the [Par] Offer is not superior to the Netflix Merger,” the board said.
David Ellison-led Paramount believes it has the easier path to regulatory approval with a deal expected to close in 12 to 18 months. That’s because Netflix, already the dominant streamer globally, would grow even larger with the addition of HBO Max. But WBD, led by CEO David Zaslav, does not claim that Netflix would have an easier time with regulators. That’s become extremely hard to handicap under the current administration. Instead, WBD said it sees “no material difference in the level of regulatory risk” for Netflix and Paramount.
“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 WBD Board carefully considered the federal, state and international regulatory risks for both the Netflix Merger and the Offer with its regulatory advisors. The WBD Board is of the view that each transaction is capable of obtaining the necessary U.S. and foreign regulatory approvals.”
Netflix said today that it’s submitted its Hart-Scott-Rodino (HSR) filing and is engaging with competition authorities, including the U.S. Department of Justice and European Commission.
Par has now made six offers, going hostile with the last two that were directed to WBD stockholders, who have until Jan. 21 to tender their shares. It has insisted it’s addressed every concern WBD has raised, something WBD denied today.
“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 WBD Board, management team and our advisors have extensively engaged with PSKY representatives and provided it with explicit instructions on how to improve each of its offers. Yet PSKY has continued to submit offers that still include many of the deficiencies we previously repeatedly identified to PSKY,” it said.
WBD slammed the extensive debt financing in Par’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 said, noting that Paramount “intends to incur an extraordinary amount of incremental debt – more than $50 billion – through arrangements with multiple financing partners.”
“The transaction PSKY is proposing is in effect a leveraged buyout. In fact, it would be the largest LBO in history with $87 billion of total pro forma gross debt and an estimated gross leverage of approximately 7x 2026E EBITDA before synergies. The WBD Board considered that an LBO structure introduces risks given the acquirer’s reliance on the ability and willingness of its lenders to provide funds at close. Changes in the performance or financial condition of either the target or acquirer, as well as changes in the industry or financing landscapes, could jeopardize these financing arrangements.
“This aggressive transaction structure poses materially more risk for WBD and its shareholders when compared to the conventional structure of the Netflix merger.”
Paramount’s latest offer added a $40.4 billion personal financial guarantee by Larry Ellison, the Oracle co-founder and one of the richest people in the world, for the equity financing.
The deal also includes 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 it has negative free cash flows with a high degree of dependency on its legacy linear business,” WBD continued. “Certain fixed obligations that PSKY has incurred or may incur prior to closing, such as the multi-year programming and sports licensing deals, could further strain its financial condition. Further, the operating restrictions between signing and closing imposed on WBD by the PSKY offer could damage our business, allowing PSKY to abandon the offer. The onerous covenants include, among others, restricting WBD’s ability to modify, renew or terminate affiliation agreements. These restrictions may hamper WBD’s ability to perform and could lead PSKY to assert that WBD has suffered a “material adverse effect,” enabling PSKY and its financing partners to terminate the transaction or renegotiate the terms of the transaction.”
In contrast, it said, “Netflix is a company with a market capitalization of approximately $400 billion, an investment grade balance sheet, an A/A3 credit rating and estimated free cash flow of more than $12 billion for 2026. The merger agreement with Netflix also provides WBD with more flexibility to operate in a normal course until closing.”
A Paramount deal would prohibit WBD from pursuing a planned spinoff of Discovery Global, WBD said, and “would also prevent WBD from completing the contemplated debt exchange and refinancing our $15 billion bridge loan, which would limit our financial flexibility.
“If the PSKY offer fails to close, WBD shareholders would be left with shares in a business that has been restricted from pursuing its key initiatives for up to 18 months.”
The separation “will afford Discovery Global enhanced strategic, operating and financial flexibility, including to pursue accretive investments and M&A opportunities or realize a future control premium for stockholders.”
“While PSKY continues to point to Comcast’s Versant as a comparable public company, Discovery Global’s business has greater scale and profits, with a geographically diversified footprint and strong international presence.” Cable company Versant officially split from Comcast this week.
Separately, Warner noted, “PSKY has been aggressive in its engagement with WBD, has retained litigation counsel and has threatened litigation.”
It said that ”PSKY’s credibility is undermined by breaches of its contractual obligations and spurious, multiple threats of litigation. PSKY has a track record of breaching its obligations to WBD. The WBD Board is aware that PSKY and its advisors on multiple occasions breached specific provisions of its non-disclosure agreement with WBD in order to, among other things, seek to receive confidential board information, concerns that were raised directly in a phone conversation between PSKY’s legal advisors and WBD’s legal advisors on November 23, 2025.”
“WBD continues to be of the view that PSKY is a litigious counterparty, which raises concerns regarding the likelihood that the Offer (or any related merger agreement) will be completed on the terms proposed.”