Paramount's Lawsuit: A Tactical Bet on Cable Stub Value

The immediate catalyst is a lawsuit filed by Paramount Skydance in Delaware Chancery Court. The mechanics are straightforward: Paramount is demanding that Warner Bros. Discovery (WBD) disclose the financial calculations behind its board's decision to reject a higher bid for the entire company in favor of a lower offer for just the studio and streaming assets. Paramount Skydance is requesting that Warner Bros. provide information about its sale process and pending multi-billion-dollar deal with rival Netflix.

This legal move frames the core tactical question. Paramount's CEO, David Ellison, argues that shareholders need this information to make an informed decision. "We filed suit this morning in Delaware Chancery Court to ask the court to simply direct WBD to provide this information so that WBD shareholders have what they need to be able to make an informed decision as to whether to tender their shares into our offer." In essence, Paramount is betting that WBD's board math is flawed and that the cable network stub-its declining cable-channel division-is worth more than the implied value in the Netflix deal.

The context for this lawsuit is a clear standoff. WBD's board rejected Paramount's $30 per share all-cash offer for the entire company in favor of Netflix's $27.25 per share offer for just the studio and streaming businesses. Paramount contends the board has never fully engaged with its bid and has provided insufficient justification for its choice. Paramount Chief Executive David Ellison said in a letter to Warner Bros. Discovery shareholders that he felt the company's board had never fully engaged with the Paramount bid. The lawsuit is a direct challenge to that opacity, forcing the board to explain its financial rationale.

The Valuation Disconnect: The Cable Stub Math

The core of the legal battle is a simple arithmetic question. Paramount's $30 per share all-cash offer is for the entire company, including its cable networks. Netflix's $27.75 per share offer is for just the studio and streaming assets. The implied difference is about $2.25 per share, which Paramount argues should represent the value of the cable network stub.

Paramount's lawsuit centers on a critical gap in disclosure. The company alleges that WBD has failed to include any disclosure about how it valued the Global Networks stub equity. This is the tactical heart of the matter. Without seeing the board's internal math, shareholders cannot judge whether the $2.25 per share discount for the cable division is justified.

The cable networks-CNN, TBS, TNT-are widely seen as a declining business. Paramount has even argued they have a $0-per-share equity value, implying they are worth little more than the debt WBD plans to leave them with. If that's the case, the math might indeed favor Paramount's higher total bid. But the board's own valuation could tell a different story. The exact figure is the missing piece.

The setup is now a direct test. If WBD's disclosure reveals the cable stub is worth significantly less than $2.25 per share, Paramount's offer looks more compelling. If the valuation is higher, the Netflix deal may stand. The lawsuit forces the board to show its work.

The Tactical Playbook: Proxy Fight and Tender Offer

Paramount's strategy is now a multi-pronged assault, but it's not about raising its bid. The company is doubling down on its existing $30 per share all-cash offer while launching a proxy fight to force a shareholder vote. The goal is clear: to give WBD's owners the final decision on which deal is better, bypassing a board that has twice rejected the higher total price.

The first prong is the lawsuit, which we've covered. The second is a direct challenge to the board's control. Paramount has announced it will submit a competing slate of directors at Warner Bros.' annual meeting. This is a classic proxy fight tactic. By nominating its own slate, Paramount aims to replace the current board with directors more sympathetic to its position. The board's rejection of Paramount's offer is a key point of contention, and a new slate could be pressured to re-engage with the $30 bid.

The fight extends to the shareholder vote itself. Paramount is also proposing an amendment to require shareholder approval for any separation of Global Networks. This directly targets the Netflix deal structure, which involves spinning off the cable networks into a separate entity. By forcing a shareholder vote on this specific step, Paramount is attempting to inject uncertainty and delay into the Netflix transaction, hoping that prolonged scrutiny will erode support.

Warner Bros. Discovery has dismissed this as a distraction. The company stated that Paramount has yet to raise the price or address the numerous and obvious deficiencies of its offer. It frames the proxy fight as a meritless attempt to derail the Netflix deal, which it claims delivers unprecedented value. The board's stance is firm: it unanimously concluded that the Netflix merger agreement is superior to Paramount's proposal.

The bottom line for investors is a battle of wills. Paramount is using legal and governance tools to pressure the board and appeal directly to shareholders. The proxy fight is a high-stakes gamble. If Paramount's slate wins, it could force a re-evaluation of the Netflix deal. If it fails, the board retains control. Either way, the process creates volatility and keeps the spotlight on the valuation of that cable stub.

Catalysts and Risks: The Path to a Deal

The immediate path to resolution hinges on two near-term events. First is the Delaware Chancery Court case, which could compel Warner Bros. Discovery to disclose its internal valuation of the cable network stub. This disclosure is the critical catalyst that will either validate Paramount's argument that the $2.25 per share discount is unjustified or confirm the board's math. Without this information, shareholders are left to guess, and Paramount's entire strategy of appealing to them is built on uncertainty.

The ultimate battleground is the shareholder vote on the Netflix Agreement. The deal is expected to close after the separation of the cable networks into a new company, which WBD now anticipates will be completed in Q3 2026. That vote will be the final say on whether the $82.7 billion Netflix transaction proceeds. Paramount's proxy fight and legal pressure are designed to create enough doubt and delay that support for the Netflix deal erodes by then.

A major risk to the Netflix deal's timeline is regulatory scrutiny. Former President Donald Trump has voiced concerns, reposting an opinion piece that warns the combination could create an "unprecedented level of cultural influence" and urging antitrust regulators to treat it as a top priority. This political dimension adds a layer of uncertainty that could slow down or even block the deal, which Paramount would welcome as a delay tactic.

Warner Bros. Discovery has dismissed Paramount's actions as a distraction. The company maintains that Paramount has yet to raise its bid or address the "numerous and obvious deficiencies" in its offer. It frames the proxy fight as meritless, arguing that the board's unanimous conclusion that the Netflix merger agreement is superior stands. The board's firm stance means Paramount must win this battle in court and in the shareholder vote, with no room for negotiation.