Warner Bros. Discovery recommended on Wednesday that investors reject an uninvited takeover offer from Paramount. This escalated the battle to control the media group.
The board, in a letter that was sharply worded, said the proposal raised serious questions about funding security and accused Paramount’s financiers, Larry and David Ellison of misleading investors repeatedly about the strength and stability of financing for the deal.
As a Board we conducted a new review, and found that the PSKY tender offer is still inferior to Netflix’s merger. WBD wrote to its shareholders that the Board “continues to recommend unanimously the Netflix merger and you should reject PSKY’s offer, not tendering your shares.”
The board stated that it was clear during discussions, any credible offer required a complete and unconditional financial commitment from the Ellison Family.
How does Warner feel about funding?
Warner Bros. Discovery is concerned that the Ellison family has not committed to a $40,65 billion equity check.
Paramount, controlled by the Ellisons’, said that its proposal included a complete backstop. Warner Bros. Discovery has said this is not true.
The Ellison Family has always misled WBD’s shareholders by claiming that the proposed transaction is backed up in full. “It does not and has never done so,” stated the WBD letter to its shareholders.
They propose, instead, that you depend on an opaque and unknown revocable fund to ensure the funding of this important deal. The Ellison Family has decided not to support the PSKY proposal despite being told by WBD that a complete and unconditional commitment of financing from the Ellisons was important. This is despite the fact they have ample resources and PSKY’s assurances during the strategic review process.
In the letter, it was also stated that the liability of trust for damages is limited to 7% or $2.8 billion. This amount represents a deal worth more than $108 billion.
Warner Bros. Discovery stated that the possible harm for shareholders in the event of a deal failure would be far greater than this amount.
Board members also expressed concern about Paramount’s credit and balance sheet, noting high levels of leverage and limited cash flows if the transaction were to be closed.
PSKY also anticipates $9 billion of synergies as a result of the Paramount/Skydance merger and its offer to acquire WBD. WBD informed shareholders that these targets were both ambitious in terms of operational efficiency and would weaken Hollywood, not strengthen it.
In the letter, Paramount also described its offer as “illusory”.
The offer may be terminated by PSKY or modified at any point before its conclusion. It is not the equivalent of a merger agreement that’s binding.
WBD endorses Netflix’s Offer
Warner Bros. Discovery compared Paramount’s offer with its own merger agreement, which it called superior and fully-negotiated with Netflix.
Netflix claims that the deal does not require equity funding and is supported by a publicly traded company with an estimated market cap of $400 billion. The company also says the balance sheet has investment grade status.
Netflix said in an email to WBD investors that its financial structure was clean and secure, with debt funding from major institutions, and it did not rely on revocable funds, personal loans, or foreign sovereign wealth fund.
The firm has filed regulatory documents and expects the transaction to be completed within 12-18 months.
Netflix cited its reverse termination fee of $5.8 billion, which is the biggest of its type in an M&A public deal. This was a sign of Netflix’s confidence that it would be able to secure regulatory approvals for its M&A deals in Europe and the United States.
What do analysts think about the recent development?
Analysts said that Warner Bros. Discovery rejecting Paramount Skydance’s offer is a genuine concern over the deal certainty, despite competing proposals carrying different regulatory risks.
Jeffrey Wlodarczak is the chief executive officer of Pivotal Research Group. He said that Warner had good reasons for favouring Netflix’s offer, which was described by him as firm, and fully supported by a wealthy buyer.
Wlodarczak stated that “the WBD concerns about the PSKY are valid given that the Netflix offer has been made firm by an enormous company which can add significant leverage.”
The Paramount Skydance project, he said, appeared to be less stable. He noted that it was not directly supported by the Ellison Family and that its approval could possibly be withdrawn.
Wlodarczak warned that the regulatory review could tip the balance.
Paramount’s bid would face less antitrust scrutiny than the Netflix deal, which will be subject to a thorough review.
Netflix can still be approved by regulators if they modify the agreement, for example divesting HBO assets while keeping short- and medium-term agreements on content.
Analyst Paolo Pescatore at PP Foresight described Warner as expressing confidence in Netflix’s execution.
Pescatore stated that the offer from Netflix and its ability to operate as one entity in future is strongly endorsed.
Netflix’s proposal, he said, appeared to provide a more balanced overall value with regulatory certainty. He called it the “path of least resistance”.
Jonathan Kees is a senior research analyst with Daiwa Capital Markets. He said that the fight will likely escalate and become a public, long-lasting battle.
Kees stated that “it is likely to become a media spectacle and proxy show, with both sides presenting their cases to investors as well as the press.”
The dispute is expected to be resolved at Warner Bros. Discovery’s next shareholders meeting in the early summer of 2026.
Kees pointed out that Vanguard, BlackRock, and State Street are the three largest institutional shareholders of Warner Bros. Discovery.
He said that while they often follow proxy advisory advice, these investors do not necessarily always.
Kees, despite the controversy, said that he believed Paramount Skydance’s financial support remains adequate, even if a few high-profile backers step down. He also stressed the fact that the final outcome depends on the sentiment of shareholders and the execution of the deal.
Paramount has options now.
Paramount submitted six bids to Warner Bros. Discovery, which has been submitting proposals for a period of 12 weeks, must now consider the next step, and possibly increase its offer.
Warner Bros. Discovery is prohibited from seeking out rival bids under the terms of its agreement with Netflix.
Paramount could, however, choose to sweeten their proposal and send it directly to Warner Bros. Discovery is being considered.
Warner Bros. If Warner Bros.
Netflix could, on its part, also improve its offer in response to any new approach by Paramount.
Paramount may still go directly to Warner Bros. despite the recommendation of its board. Discovery’s shareholders.
Pescatore stated that the recent developments have left Paramount Skydance weakened.
Pescatore added that even an increased bid might not be enough to satisfy the board.
This could be a campaign to attract investors, materials sent to them or an increase in the offer.
Paramount could still gain control without the support of a board if it were to convince a majority to sell their shares.
A better offer could force Warner Bros. Discovery to reconsider its position.
Analysts say a vote by shareholders is not likely to happen before April. This leaves room for more maneuvering in the months ahead.
Wlodarczak stated that Paramount Skydance needed to abandon the hostile approach and remove its revocable Trust structure. It would also need to increase its Offer to cover Netflix’s Break-up Fee, as well as agreeing to its own higher Termination Penalty.
What role could regulation and politics play in shaping the outcome?
Both proposals are under scrutiny by regulators, though Paramount has claimed that its proposal would be less antitrust-related than a partnership with Netflix which dominates the global streaming market.
White House will play an important role in determining how regulators approach either transaction.
Paramount is backed by Gulf sovereign wealth funds, including the Ellison family.
Trump said that he was not close with either bidder, but suggested Netflix’s offer could cause competition issues. This would add another layer of uncertainty in a takeover battle already complicated.
The post entitled Why Warner Bros Discovery prefers Netflix over Paramount’s hostile bid could be updated as new developments unfold.
