WBD's Netflix Deal: A Clearer Path After Paramount's Rejection

The immediate event is a decisive boardroom rejection. On Wednesday, the Warner Bros. Discovery board unanimously recommended shareholders reject Paramount Skydance's latest offer. The board's letter was blunt: the revised $30-per-share cash bid is "inferior" and "inadequate." This isn't a minor disagreement; it's a formal, board-level verdict that the hostile leveraged buyout fails to meet the company's fiduciary standard.

Paramount's offer, even with a revised structure and billionaire backstop, is framed by WBD as a massive, high-risk financial engineering play. The company called it "the largest LBO in history," a structure where the acquiror's financing is the deal's Achilles' heel. The board highlighted that changes in market conditions or financing sources could easily derail the transaction, leaving shareholders exposed to uncertainty and potential litigation. This contrasts sharply with the Netflix deal, which is a signed agreement with built-in protections and a clearer path to closing.

The core investment question now crystallizes. WBD's board is sticking with its $72 billion agreement to sell its streaming and studio business to Netflix for $27.75 per share. This is the superior, less risky exit. The board argues the Netflix deal delivers "compelling value" and "a clear path to closing," with shareholder safeguards if the deal falters. Paramount's offer, by contrast, presents a complex, uncertain, and structurally risky alternative. The rejection letter is the catalyst that forces a choice: accept the known path with Netflix or gamble on a hostile bid that the board believes creates more risk than value.

The Mechanics: Why Netflix Wins on Certainty

The board's rejection letter wasn't just a vote; it was a detailed anatomy of risk. The structural and financial differences between the two deals now define the immediate risk/reward setup for WBD shareholders. The Netflix transaction, with its clear mechanics, offers a path to value. Paramount's offer, even after a costly amendment, introduces layers of complexity that the board deems unacceptable.

First, consider the financial footprint. The Netflix deal is a cash-and-stock transaction valued at $27.75 per share, with a total enterprise value of approximately $82.7 billion. This is a straightforward, signed agreement. Paramount's revised offer, meanwhile, is an all-cash bid at $30 per share. But its funding mechanism is the critical vulnerability. The board's key objection was to the financing's certainty. Paramount's amendment adds an irrevocable personal guarantee from Larry Ellison for the equity portion. While this may address a specific concern, it transforms the deal's risk profile. The transaction now hinges on the personal creditworthiness and willingness of a single billionaire, adding a layer of opacity and potential counterparty risk that a standard corporate financing does not.

Second, the Netflix deal includes a necessary, but clear, regulatory step. The transaction requires the spin-off of WBD's Global Networks division into a new public company before closing. This is a known, pre-announced condition, expected to be completed in the third quarter of 2026. It's a hurdle, but one with a defined timeline and a path. Paramount's offer, by contrast, is conditioned on WBD continuing to own its Global Networks business. This creates a different kind of uncertainty, as it may complicate the regulatory approval process for a hostile takeover that seeks to acquire the entire company.

The bottom line is one of predictability versus peril. The Netflix deal delivers a higher total enterprise value and a structure with built-in shareholder protections. Paramount's offer, while nominally higher on a per-share basis, trades that certainty for a complex, personally-guaranteed financing that the board believes is prone to failure. For shareholders, the immediate setup favors sticking with the known path. The Netflix transaction's mechanics are transparent and less prone to a single point of failure. Paramount's offer, even with Ellison's guarantee, introduces a new variable that could derail the deal, leaving shareholders with a less valuable alternative or a protracted legal battle.

The Valuation and Catalysts Ahead

The board's rejection sets the immediate investment thesis. The Netflix price of $27.75 per share implies a ~10% discount to the $30 Paramount offer on a per-share basis. Yet the board deems it superior because the risk profile is fundamentally better. The Netflix deal offers a clear, signed path with built-in shareholder protections. Paramount's offer, even with a billionaire's personal guarantee, introduces a complex, debt-laden financing structure that the board believes is prone to failure. For shareholders, the immediate setup favors the known path over a higher, but structurally perilous, alternative.

The next major catalyst is the expected completion of the WBD Networks spin-off in Q3 2026. This is a prerequisite for the Netflix deal to close. The spin-off is a known hurdle with a defined timeline, but it also represents a period of operational focus for WBD. Any missteps or delays here could test the company's management and potentially introduce volatility. For now, the board's continued support and Netflix's engagement signal the process is on track.

Key risks remain on both fronts. On the Netflix side, regulatory hurdles are the primary overhang. The company has filed its Hart-Scott-Rodino application, but antitrust reviews in the U.S. and the EU could still pose challenges. Any significant regulatory pushback would delay the deal and create uncertainty. On the Paramount front, the board has not ruled out further attempts. The consortium's backing remains a variable, and the offer could be restructured again. While the board has called the current offer "inferior," a new amendment with different terms could force shareholders to reconsider.

The bottom line is a test of patience. The investment case hinges on the Netflix deal closing as planned, which requires navigating the Q3 2026 spin-off and regulatory approvals. The $27.75 price provides a floor of sorts, but the stock's movement will be dictated by progress on these near-term catalysts and any new moves from Paramount.