In the ongoing battle for control over Warner Bros. Discovery (WBD), the company’s board has declined to accept Paramount's updated hostile takeover offer, reaffirming its preference for a merger with Netflix. This decision was communicated to shareholders on Wednesday, building upon concerns originally raised about Paramount's financial approach and the overall risk profile of its bid.
Paramount had submitted a revised proposal last month intending to address various significant issues the WBD board previously underscored. Despite these efforts, WBD executives describe the offer as inadequate and laden with substantial risk, particularly when compared with the existing Netflix merger deal.
Central to the board's objections is Paramount’s plan, which resembles a leveraged buyout—a method often involving considerable borrowing to finance the acquisition. Paramount, a company smaller in scale relative to WBD, anticipates incurring debt exceeding $50 billion through arrangements with multiple financial partners to execute the transaction. WBD’s board warned that this debt level introduces materially elevated risks not only for the company itself but also for its shareholders.
The letter sent to shareholders emphasized that Paramount's financing strategy, given its magnitude and complexity, could result in the takeover plan collapsing altogether. The WBD board contrasted this with the more assured pathway presented by the merger agreement with Netflix.
Paramount’s leadership, including CEO David Ellison—who initially sparked interest in a bid last year by targeting WBD assets including CNN—has attempted to reassure critics about the viability of the financing. A major backer is Larry Ellison, billionaire co-founder of Oracle and father to Paramount's CEO, who is underwriting much of the proposed takeover. Paramount's team has reiterated that this backing supports the robustness of their offer.
Previously, after receiving Netflix’s proposal valued at $27.75 per share—which combines $23.25 in cash and the remainder in Netflix stock—WBD accepted this offer following an auction process overseen by CEO David Zaslav. Subsequently, Paramount countered with a public bid of $30 per share, though the WBD board rejected this on grounds that extended beyond the mere price per share.
Another significant factor influencing the board’s decision involves the treatment of WBD's cable assets, which are excluded from the Paramount offer. These channels, notable among them CNN, are to be spun off this year into a new public entity called Discovery Global. WBD’s leadership believes this spin-off holds considerable value independently, whereas Paramount evaluates it at a nominal $1 per share, underscoring divergent perspectives on asset valuation.
When Paramount initially made its hostile bid, WBD characterized the offer as "illusory," voicing reservations particularly about the nature of its financial backing. Significant funding for the transaction originates from royal families of Saudi Arabia, Qatar, and Abu Dhabi, which the board cited as part of its unease.
In response to these concerns, Paramount amended its offer on December 22 to include a personal guarantee from Larry Ellison for the $40.4 billion he is investing to fund the $78 billion deal. Additionally, the Ellison family committed to increased transparency by allowing WBD shareholders access to the financial workings of their family trust. Paramount also raised its breakup fee commitment to $5.8 billion, matching Netflix’s terms. Despite these adjustments, the base bid price remained at $30 per share.
Looking ahead, Paramount faces a crucial choice among three paths: withdrawing from the bid entirely, increasing its offer beyond $30 per share, or pushing the matter toward a shareholder vote. Given the hostile nature of Paramount's proposal, there exists the possibility that stockholders might oppose the board’s recommendation if Paramount insists on direct shareholder engagement.
In sum, the WBD board emphasizes that, despite the nominally higher price from Paramount, the risks associated with the deal’s financial structuring, combined with undervaluation of critical assets and stringent deal conditions, render Netflix’s merger proposal the superior and more secure course.