WBD's Second Rebuff: The $108B Bid's New High-Stakes Gamble

The immediate catalyst is clear. Warner Bros. Discovery's board of directors has delivered a decisive second rebuff to Paramount Skydance's hostile bid. On Wednesday, the board unanimously rejected the revised offer, stating its terms are inferior to Warner's $82.7 billion merger agreement with Netflix. This isn't a minor negotiation hiccup; it's a board-level choice to walk away from a potential $108.4 billion deal for the entire company in favor of a path already set with Netflix.

The key new element in Paramount's gambit was a personal guarantee. After its initial bid was rejected for lacking financing certainty, Paramount returned with an improved offer that included a personal guarantee from Oracle co-founder Larry Ellison for $40.4 billion in equity. This was a direct attempt to address the board's stated concerns about the reliability of its funding. Yet, even with this high-profile backing, the board found the deal's risks too great.

The contrast between the two deals is stark. The Netflix deal, valued at $82.7 billion, is a $72-billion offer for Warner's streaming and studio assets, a mix of cash and stock. Paramount's bid, at $108.4 billion, is for the entire company, including CNN, HBO, and the linear cable networks. The board's statement highlights the trade-off: the Netflix merger offers superior value at greater levels of certainty and avoids the significant debt burden and operational risks Paramount's offer would impose.

For Paramount, this is a high-stakes gamble that has now been called. The board's rejection confirms that the Netflix path is the chosen one, at least for now. The personal guarantee from Larry Ellison, while bold, was not enough to change the board's calculus. The auction may not be over-Paramount has extended its deadline to January 21-but the board's message is unequivocal.

The Immediate Risk/Reward Setup

For WBD shareholders, the board's rejection of Paramount's revised offer sets a clear, if narrow, risk/reward path. The immediate takeaway is that the board has chosen the known path with Netflix over the high-stakes gamble of a Paramount deal. The board argues its Netflix agreement offers superior value at greater levels of certainty and avoids the significant debt burden Paramount's offer would impose. This is the core of the setup: shareholders are being told to accept a deal with a clear structure and a major streaming partner, rather than risk a leveraged buyout for the entire company.

Both deals, however, include a substantial financial incentive to walk away. Each has a $5.8 billion breakup fee, a figure Paramount raised to match Netflix's terms. This fee provides a powerful deterrent against either side backing down, but it doesn't resolve the fundamental debate over which deal delivers more value. It simply ensures that if the board walks away from the Netflix deal, it will pay a massive penalty. For now, that fee locks in the Netflix path as the default.

The Paramount bid's reliance on a personal guarantee introduces a novel and unique counterparty risk. The offer's financing now hinges on Larry Ellison's personal guarantee of $40.4 billion. This ties the deal's viability directly to Ellison's wealth and trust, creating a single point of failure not present in the Netflix arrangement. While the guarantee addresses concerns about funding reliability, it shifts the risk profile. If Ellison's financial position were to change, or if the trust were to be revoked, the entire bid could unravel. This is a high-stakes element that adds a layer of uncertainty the board deemed unacceptable.

The bottom line is that the board's decision removes one major overhang-the immediate threat of a hostile takeover-but it does not eliminate all risk. The Netflix deal still faces regulatory scrutiny, and the $5.8 billion breakup fee means the board is financially committed to seeing it through. For shareholders, the immediate reward is the certainty of a deal with a streaming giant. The risk is that they may be leaving behind the potential for a higher, albeit more uncertain, total value from a full-company sale. The setup now is a binary choice, with the board having made its case for the safer path.

Near-Term Catalysts and Watchpoints

The stalemate is set, but the clock is ticking. With Paramount's deadline extended to January 21, the coming weeks will hinge on a few specific catalysts that could break the deadlock or confirm the board's chosen path.

First, watch for a shareholder vote or legal challenge to the Netflix deal. WBD has already urged shareholders to reject the Paramount bid, framing it as a hostile takeover. This sets the stage for a potential proxy fight if Paramount continues its pursuit. More immediately, regulatory scrutiny is a near-term overhang. Both the Netflix and Paramount deals require Hart-Scott-Rodino filings, and given the scale of the Netflix acquisition, a second request for information is likely. This process can create significant delays and uncertainty, testing the patience of both the board and shareholders. The recent class action lawsuit filed against Netflix over its proposed merger adds another layer of legal risk that could complicate the timeline.

The stock price itself is a key real-time indicator. WBD shares are currently trading around $28.47, well below the $30 per share offer price from Paramount. A sustained move above $30 would signal growing shareholder confidence that the Netflix path is the best available option, effectively pricing in the breakup fee and regulatory risks. Conversely, a break below $28 could pressure the board, suggesting investors see more value in the Paramount offer or are concerned about the Netflix deal's execution. The stock's recent 20-day gain of 9.2% shows momentum, but its 5-day decline of 1.1% indicates underlying volatility and debate.

The bottom line is that the board's rejection has shifted the burden of proof to Paramount. For the stalemate to hold, Paramount must either secure financing without the Ellison guarantee, win over shareholders, or force a regulatory or legal fight. Any of these paths introduces new risks and delays. For now, the watchpoints are clear: monitor the regulatory filings for second requests, watch the stock for a breakout above $30 or a breakdown below $28, and be alert for any shareholder action. The next few weeks will test whether the board's chosen path is truly the safest, or if the high-stakes gamble is still a live option.