Warner Bros. Discovery's Board Isn't Choosing a Deal - It's Avoiding One

Warner Bros. Discovery’s board has rejected Paramount Skydance’s $108.4 billion all-cash bid for the eighth time. The board cited concerns about the offer’s value, certainty, and risks to shareholders. The company reiterated its support for the Netflix merger agreement, which it claims offers greater certainty and lower downside risk.

Paramount’s offer, backed by Oracle co-founder Larry Ellison, guarantees $40.4 billion in equity. The board, however, raised concerns about the feasibility of the leveraged buyout structure. It noted that Paramount’s plan relies on $54.6 billion in debt, an amount it characterized as excessive and risky.

The board also highlighted the potential costs of switching from the Netflix deal to Paramount’s. These include a $2.8 billion termination fee to Netflix, a $1.5 billion debt exchange fee, and additional interest expenses totaling $4.7 billion. The board argued that the net value of Paramount’s offer, even with the $5.8 billion regulatory termination fee, would fall short of the Netflix deal.

Why Did This Happen?

Warner Bros. Discovery’s board has consistently argued that its merger with Netflix is in the best interest of shareholders. The Netflix deal, valued at $82.7 billion, includes a cash-and-stock structure. WBD shareholders would receive $23.25 in cash and Netflix stock with a target value of $4.50 per share, plus the long-term value of Discovery Global. The board emphasized the strategic and financial benefits of this structure.

Paramount’s offer, by contrast, is an all-cash deal but introduces greater uncertainty. The board described the offer as a leveraged buyout, the largest in history. It highlighted concerns about the acquirer’s ability to secure and maintain financing. The debt-heavy nature of the deal increases the risk of failure, which could leave WBD shareholders with limited recourse according to analysis.

How Did Markets React?

Shares of Warner Bros. Discovery, Paramount, and Netflix all declined at the market open on Thursday. Investors appear cautious as the battle between Paramount and WBD’s board intensifies. The stock market’s reaction to the latest developments reflects uncertainty about the outcome.

Paramount’s chairman and CEO, David Ellison, defended the offer as superior to Netflix’s. He argued that the revised $30-per-share bid is a better value and includes a personal guarantee from his father, Larry Ellison. The company stated it is prepared to engage directly with the WBD board to address its concerns according to reports.

What Are Analysts Watching Next?

Analysts and investors are closely monitoring the regulatory landscape. The proposed deals face potential scrutiny from antitrust regulators, particularly the U.S. Department of Justice and the Federal Trade Commission. The likelihood of regulatory challenges remains high, especially for the Paramount deal, which involves the full acquisition of WBD.

Some shareholders, including Pentwater Capital Management, believe the board is not engaging constructively with Paramount. They argue that the revised offer is economically superior to the Netflix deal and that the board’s stance is misguided. This dissent adds another layer of complexity to the ongoing corporate battle according to analysis.

The WBD board remains committed to the Netflix deal. It has emphasized the certainty of the transaction and the financial flexibility it provides. The board has also highlighted the planned separation of Discovery Global, which it believes will enhance long-term shareholder value. However, Paramount’s persistence suggests the contest is far from over as reported.