Warner Bros. Discovery has rejected Paramount Skydance’s amended $30 per share, all cash offer to acquire the entire company.
The board unanimously determined that the revised $108.4 billion bid, which includes an “irrevocable personal guarantee” from Oracle co-founder Larry Ellison to backstop $40.4 billion of the equity financing through the Ellison family trust and raises the break-up fee to $5.8 billion, continues to offer “insufficient value” and “significant costs, risks and uncertainties.”
The board continues to see Paramount’s amended offer as “inadequate” and “inferior,” also maintaining that there’s a “lack of certainty” in the company’s ability to complete the offer.
In a letter to shareholders, WBD argued that Paramount Skydance has repeatedly failed to submit the best proposal for its shareholders, despite “explicit instructions on how to improve each of its offers,” and that the amended offer includes many deficiencies previously identified in its original bid.
“They are well aware of the reasons behind the board’s determination that the Netflix merger agreement is superior to its offer,” the board continued. “If on
Dec. 4 PSKY did not recognize the weaknesses of its proposal when the board concluded the process, it has now had several weeks to study the Netflix merger agreement and adjust its offer accordingly. Instead PSKY has, for whatever reason, chosen not to do so.”
It added that the $83 billion Netflix deal for WBD’s studio and streaming assets “maximizes value while mitigating downside risks” and that the board unanimously believes the Netflix merger is in shareholders’ best interest.
“We are focused on advancing the Netflix merger to deliver its compelling value to you,” the letter concluded.
In its rationale, the board said taking Paramount Skydance’s offer would lead to $4.7 billion, or $1.79 per share, in total costs, including a $2.8 billion termination fee to Netflix; a $1.5 billion fee if it fails to complete a debt exchange, which the board says it could not execute under Paramount’s offer; and approximately $350 million in incremental interest expense.
That would effectively reduce the amount of its $5.8 billion break-up fee to $1.1 billion in the event of a failed transaction with Paramount Skydance due to regulatory reasons, which WBD says represents an “unacceptably low” 1.4% of the transaction equity value and would “not come close” to helping it address potential damage to its business.
“In comparison, the Netflix transaction imposes none of these costs on WBD,” the board said.
WBD’s board also argued that the amount of debt financing in the Paramount bid heightens the risk of its failure to close.
Paramount’s bid includes $40.7 billion in equity financing, including $11.8 billion from the Ellison family and $24 billion from Saudi Arabia’s Public Investment Fund, the Qatar Investment Authority and Abu Dhabi’s L’imad Holding Company, according to a filing with the U.S. Securities and Exchange Commission. Jared Kushner’s Affinity Partners had also initially agreed to contribute $200 million to Paramount’s bid, according to the New York Times, but later backed out. It also includes $54 billion in committed debt financing from Bank of America, Citibank and Apollo Global Management.
The board notes that Paramount is attempting an acquisition requiring $94.65 billion of debt and equity financing, nearly seven times its $14 billion market cap, and proposing the largest leveraged buyout in history with $87 billion of gross debt and leverage of seven times 2026 EBITDA before synergies.
“The WBD board considered that an LBO structure introduces risks given the acquiror’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 acquiror, as well as changes in the industry or financing landscapes, could jeopardize these financing arrangements,” the board wrote. “This aggressive transaction structure poses materially more risk for WBD and its shareholders
when compared to the conventional structure of the Netflix merger.”
It argues the risks in the LBO structure are exacerbated by the amount of debt Paramount Skydance must incur, as well as its current financial position, future prospects and the lengthy closing period, which Paramount has said would take 12 to 18 months.
“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,” the board said. “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.”
It added that, in Paramount’s bid, operating restrictions between signing and closing could damage WBD’s business by preventing them from pursuing key initiatives for up to 18 months and allow Paramount to terminate or renegotiate the deal by claiming WBD suffered a “material adverse effect.”
According to WBD, the Paramount offer restricts WBD’s ability to modify, renew or terminate affiliation agreements, prohibits it from pursuing its planned separation of Discovery Global and Warner Bros., and prevents the company from completing a debt exchange and refinancing its $15 billion bridge loan.
“The offer is entirely at PSKY’s discretion – PSKY can reduce the price, impose
new conditions or walk away entirely at any time prior to its acceptance of
tendered shares,” the board added.
In comparison, Netflix has a $400 billion market cap, an investment grade balance sheet, an A/A3 credit rating and estimated free cash flow of more than $12 billion for 2026. The board said their deal also offers WBD more flexibility to operate in a normal course until closing, provides a $5.8 billion break-up fee and would allow shareholders to benefit from the company’s planned initiatives, including the spinoff of Discovery Global in the third quarter of 2026.
Additionally, it noted that regulatory risk is “not a material differentiating factor” between the Netflix merger and Paramount offer and believes both deals are
capable of obtaining the necessary U.S. and foreign regulatory approvals.
However, it said that Paramount’s regulatory approvals cannot be obtained by the offer’s current expiration date, noting that they include federal and state authorities in the U.S., as well as 20 or more merger control authorities worldwide, 10 or more foreign investment control authorities and
multiple broadcast, communications and media authorities worldwide.
Though Paramount has maintained that its bid would not trigger a review by the Committee on Foreign Investment in the United States (CFIUS), WBD said the committee has broad authority to review deals and that the president’s national security findings in such a context are not subject to judicial review. It also noted that certain non-U.S. regulators have similarly broad authority.
Given these factors, the board concluded the Paramount bid is “not superior, or even comparable” to Netflix’s deal.
The latest rejection comes after WBD’s board called the original $30 per share offer, which was Paramount CEO David Ellison’s sixth proposal made over the course of 12 weeks, “inadequate” and “illusory.”
While WBD’s board has recommended against both the original and amended $30 per share offers, the company’s shareholders can still tender their shares to Paramount Skydance until 5 p.m. ET on Jan. 21.
As of Dec. 8, Paramount Skydance owned 1,000 shares of WBD stock, representing less than 1% of outstanding shares. As of Dec. 15, WBD’s non-employee directors and executive officers held an aggregate of 9,352,645 shares of WBD common stock. If they decided to tender their shares, they would collectively receive $280,579,350 in cash.
As of Dec. 19, less than 400,000 shares had been validly tendered and not withdrawn, though shareholders can do so at anytime before the deadline. Paramount also has the option of extending the tender offer deadline.
Without board approval, Paramount would need at least 90% of WBD’s outstanding shares for its tender offer to be successful. WBD has approximately 2.48 billion outstanding shares.
Netflix, which is offering $27.75 per share in a cash-and-stock deal and expects additional value from the spin off of Discovery Global, has submitted its Hart-Scott-Rodino (HSR) filing and is engaging with regulators, including the U.S. Department of Justice and European Commission.
“Netflix and Warner Bros. will bring together highly complementary strengths and a shared passion for storytelling,” Netflix co-CEOs Ted Sarandos and Greg Peters reiterated in a statement on Wednesday. “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 streamer expects its deal with WBD to close in the next 12 to 18 months.
