Netflix's WBD Deal: A Tactical Pivot Amid Hostile Bids and Regulatory Hurdles

The board's decision is the latest salvo in a bidding war that has now reached eight offers. On Wednesday, Warner Bros. Discovery's board unanimously rejected Paramount's latest $30-per-share cash bid, calling it "inadequate" and a plan that "poses materially more risk for WBD and its shareholders". This rejection, framed as a response to a revised offer filed on December 22, solidifies the Netflix-WBD merger as the preferred path forward.

The core transaction details remain unchanged. Under the definitive agreement, Netflix will acquire Warner Bros. studios and HBO Max for $27.75 per WBD share, with a total enterprise value of approximately $82.7 billion. The board's letter to shareholders explicitly contrasts this deal's "certainty" with the risks of Paramount's leveraged buyout structure, which would require the smaller acquirer to incur more than $50 billion in incremental debt.

This rejection forces Paramount into a clear tactical choice. The board has made its stance unambiguous: the Netflix deal is superior in value and security. With Paramount's offer now nonbinding and subject to the acquirer's discretion, the pressure is on David Ellison's company to decide whether to escalate, match the Netflix terms, or walk away. For now, the board's unanimous rejection has removed a major overhang, keeping the Netflix merger on track.

The Tactical Math: Termination Fees and Net Proceeds

The financial mechanics of this bidding war are now clear, and they heavily favor the Netflix deal from WBD's perspective. Both Paramount and Netflix have a $5.8 billion termination fee attached to their offers. But the board's calculation reveals a stark difference in net proceeds.

For WBD, the cost of walking away from the Netflix merger is a $2.8 billion fee. If Paramount's deal fails, the company would also owe a $1.5 billion fee for failing to complete a debt exchange and face about $350 million in incremental interest. Combined, these costs would reduce Paramount's $5.8 billion fee to a net of just $1.1 billion. In other words, WBD would be on the hook for nearly $4.7 billion in additional costs if the Paramount deal falls apart.

By contrast, the Netflix deal's $5.8 billion fee imposes none of these costs on WBD. The board's math is straightforward: the net value of the Paramount offer, after accounting for these failure costs, does not come close to helping WBD address the likely damage to its businesses. This creates a powerful disincentive for WBD to accept the higher $30-per-share cash bid.

The critical pre-condition adds another layer of complexity. The separation of WBD's Global Networks division into a new public company, Discovery Global, is now expected in Q3 2026. This spin-off is a necessary step before the Netflix merger can close, introducing timeline uncertainty and another regulatory hurdle. For now, the termination fee math and the separation timeline give WBD's board a clear tactical lever. They have framed the Netflix deal as the path of least financial and operational risk, a calculation that Paramount must now overcome.

The Market's Reaction and Regulatory Hurdles

The market's verdict on this deal is clear: skepticism is running high. Netflix's stock has declined 9.6% over the past 20 days and is down a steep 27.5% over the past 120 days. This underperformance suggests investors are pricing in significant execution risk, from the deal's massive scale to the looming regulatory scrutiny.

That scrutiny is the next major hurdle. The transaction's sheer size and its leveraged nature make it a prime target for antitrust review. Netflix has already submitted its Hart-Scott-Rodino (HSR) filing and is engaging with competition authorities, including the U.S. Department of Justice and the European Commission. The deal's path will now be tested by regulators, adding a layer of uncertainty that the market is discounting.

The immediate catalyst, however, is the shareholder vote. The board's recommendation is now in place, but the clock is ticking. The key near-term event is the shareholder vote deadline on January 21, 2026. This date will test the board's recommendation if Paramount escalates its bid. For now, the market is reacting to the risks-the regulatory overhang and the stock's sharp decline-more than the board's confident stance. The setup is a classic event-driven tension: the deal's approval is still months away, but the market is already pricing in the friction.