WBD's Netflix Deal: A Modern LBO Rejected in Favor of a Clearer Path

The board's decision came down to a stark contrast in risk profiles. Paramount's revised $108.4 billion offer was framed as a classic, high-stakes leveraged buyout. The board called it a risky leveraged buyout that investors should reject, noting it hinges on an extraordinary amount of debt financing. Under this plan, the smaller Hollywood studio would have been saddled with $87 billion in debt, making it the largest LBO in history. The financing itself was a major vulnerability, relying on a $54 billion debt package for a company with a market value of just $14 billion and a junk credit rating. The board highlighted that changes in the performance or financial condition... could jeopardize these financing arrangements, and pointed to a history of large LBOs where acquirors or their lenders sought to renegotiate terms.

In direct comparison, the Netflix deal presented a simpler, fixed-

asset sale. It carries a $82.7 billion price tag and is structured as a conventional merger. Analysts see this as a key advantage, with the board itself noting the Netflix merger has a conventional structure that poses materially less risk than the aggressive LBO framework. The streaming giant's proven funding ability is central to this calculus. With a $400 billion market value and investment-grade credit rating, Netflix offers a clear path to closing. This contrasts sharply with Paramount's complex, debt-heavy plan, which analysts view as having fewer execution risks due to its simpler structure and Netflix's ability to fund the deal.

The bottom line for the board was one of certainty versus chaos. The Netflix offer, while complex in its own right, is a known quantity backed by a financially robust partner. Paramount's bid, even with a personal guarantee from Larry Ellison, remains a high-wire act dependent on a massive, unproven debt package. The board concluded that the risks and potential costs to shareholders if the LBO unravels far outweigh the incremental value of a higher cash price.

Valuation and Shareholder Protection: The Netflix Advantage

The Netflix deal's financial terms are designed to provide the certainty the board deemed essential. A key feature is the termination fee of $5.8 billion, matching Paramount's revised offer. This fee creates a powerful financial incentive for both parties to see the deal through, protecting shareholders from a costly and value-destructive breakup. Yet the board sees a critical difference in what that fee actually covers. For Netflix, the fee is a straightforward cost of doing business. For Paramount, the board argues, the fee would be offset by significant penalties WBD would still owe, including a $2.8 billion payment to Netflix and other costs, leaving a net payout of only about $1.1 billion. This structure, the board contends, makes the Netflix agreement a more reliable path to closing.

More fundamentally, the Netflix agreement embeds protections that directly address the board's core fear: a deal falling apart. The board explicitly highlighted that the Netflix merger offers protections for our shareholders if something stops the close. This is a direct rebuttal to the LBO's inherent fragility. A debt-financed takeover is vulnerable to a cascade of failures-changes in market conditions, credit ratings, or even the acquirer's own financial health can trigger a collapse. The Netflix deal, by contrast, is a conventional merger backed by a financially stable partner. Its structure is less prone to the renegotiation or termination tactics that have plagued large leveraged buyouts in the past.

Finally, the deal's focus on the studio and streaming assets allows WBD to shed its most burdensome liabilities. The Netflix transaction excludes the debt-laden pay TV networks, which have been a drag on the company's financial profile. This selective sale enables WBD to improve its overall balance sheet and strategic focus. The board's emphasis on a "clear path to closing" is not just about the price; it's about the quality of the assets being sold and the cleaner financial picture that results. In this light, the Netflix deal isn't just about value-it's about delivering that value through a framework that minimizes the risk of a catastrophic execution failure.

Historical LBO Context: Lessons from the Past

The board's concerns about debt risk are not new. The structure Paramount is proposing-the largest LBO in history-carries a well-documented legacy of execution and refinancing troubles. Large leveraged buyouts have historically been vulnerable to a cascade of failures, where changes in market conditions or the acquirer's financial health can trigger a collapse. The board's warning that acquirors or their equity and/or debt financing sources can, and do, seek to assert failures of closing conditions echoes a recurring pattern in corporate history.

A clear example from the past is the 2004 buyout of Hollywood Entertainment. That deal was a cash- and debt-financed management buyout that took the company private. While it provided a premium to shareholders at the time, it also removed the company from public market scrutiny and saddled it with significant financial strain. This mirrors the board's current fear: a debt-heavy transaction can shift the balance of power and increase pressure on the target's operations, a dynamic that has played out in numerous media consolidations.

More recently, the media consolidation landscape has shifted toward less leveraged structures. The Skydance-Paramount merger in 2025, which created a new entity, was a cash-and-stock deal valued at $8 billion. It was not an LBO. This recent precedent highlights a broader trend in the industry, where recent deals have favored conventional merger structures over the aggressive debt financing of the past. The board's preference for the Netflix merger's conventional framework is, in this light, a return to a more familiar and less risky playbook for media transactions.

The bottom line is that the board is applying a historical lens. They see the Paramount offer not as a novel financial engineering feat, but as a classic, high-risk leveraged buyout that fits a known pattern of fragility. By contrast, the Netflix deal aligns with the more stable, less leveraged consolidation seen in the immediate past. In this context, the board's choice isn't just about today's price; it's about avoiding the recurring pitfalls of the largest LBOs in history.

Catalysts and Risks: The Path to Closing and What to Watch

The board's recommendation is a clear vote for the Netflix deal, but the path to closing is now defined by a series of forward-looking events and persistent risks. The primary catalyst is regulatory approval. Netflix has already stated it is engaging the U.S. Department of Justice and European Commission on antitrust concerns. The transaction's success hinges on these agencies clearing the merger, which will be the next major hurdle. The board's emphasis on a "clear path to closing" assumes these reviews proceed without material conditions that could derail the deal.

A key risk to the board's thesis is the potential for a protracted legal battle. The board has explicitly warned that Paramount is a litigious counterparty, citing reports of a "DEFCON 1" lawsuit plan. This creates a cloud of uncertainty that could distract management and delay the process. While the board has rejected the revised offer, the persistent pressure from a committed bidder with a personal guarantee from Larry Ellison could force WBD into costly defensive maneuvers or even a new round of negotiations.

Ultimately, the deal's value will be tested by execution. The board's choice is based on a promise of stability, but the real test is whether Netflix can successfully integrate the assets and deliver on its stated commitments. Paramount's pitch centered on its promise of greater content production, greater theatrical output, and more consumer choice. For the Netflix deal to justify its complexity and higher effective cost, Netflix must demonstrate it can meet or exceed those promises. The integration of a major studio and streaming business is a significant operational challenge, and any stumble here would undermine the board's entire rationale for favoring this path over a simpler, all-cash offer.

The bottom line is that the board has chosen a path of known risks over a larger, more complex gamble. The catalysts are regulatory and the risks are legal and operational. The board's confidence in the Netflix agreement rests on the belief that its conventional structure and Netflix's financial strength will see it through these challenges, delivering value where the LBO's debt-fueled framework might fail.