Warner Bros. Discovery Inc. (WBD) is fighting back against a rival bidder with some pointed language. On Wednesday, the company's board urged shareholders to reject Paramount Skydance Corp.'s (PSKY) tender offer, calling it inferior to the existing merger agreement with Netflix (NFLX) and warning it would impose "significant risks and costs" on investors.
The rejection comes after Paramount launched its competing offer on December 8, just days after Warner Bros. signed a merger agreement with Netflix on December 4 and announced it publicly on December 5. The WBD board unanimously concluded that Paramount's bid doesn't meet the threshold of a "Superior Proposal" under the terms of the Netflix deal and isn't in shareholders' best interests.
In a letter to investors, the board explained that it had initiated a public review of strategic alternatives back in October and engaged with multiple potential buyers. That process, conducted with independent financial and legal advisors, ultimately led to the Netflix agreement after what the board described as a competitive review.
The Numbers Behind The Battle
Under the Netflix deal, Warner Bros. Discovery (WBD) shareholders would receive $23.25 per share in cash plus $4.50 per share in Netflix stock, subject to a price collar. The board also pointed to additional value tied to the planned separation of Discovery Global and potential upside following that transaction. Netflix values the total deal at $27.75 per share, with an enterprise value of approximately $82.7 billion.
Board Chair Samuel A. Di Piazza Jr. said Paramount's bid "provides inadequate value" and comes with substantial execution risks that the Netflix deal doesn't carry.
Financing Questions And Execution Concerns
Warner Bros. didn't hold back in questioning Paramount's ability to actually complete the deal. The board challenged the financing structure, noting that the Ellison family hasn't provided an equity backstop to guarantee funding. Instead, the offer relies on a revocable trust with undisclosed assets and liabilities that can change over time, creating what the board called "uncertainty and downside risk."
The letter also highlighted that damages are capped under the trust arrangement, even in scenarios involving willful breach. By contrast, Warner Bros. described the Netflix agreement as binding, fully financed, and backed by a public company with an investment-grade balance sheet.
The Cost Of Switching Horses
Here's where things get expensive. The board warned that walking away from the Netflix deal to accept Paramount's offer would trigger substantial costs, including a $2.8 billion termination fee plus approximately $1.5 billion in financing costs. That's roughly $4.3 billion in total, or about $1.66 per share, which shareholders would be on the hook for if the Paramount offer ultimately fails to close.
And failure is a real possibility, according to Warner Bros. The board pointed out that Paramount's tender offer is non-binding and can be amended or terminated at any time. It would also require global regulatory approvals that could take 12 to 18 months, extending uncertainty for shareholders throughout that period.
On the regulatory front, the board stated that its advisers found no material difference in regulatory risk between the Paramount offer and the Netflix deal. But Warner Bros. highlighted Netflix's (NFLX) $5.8 billion regulatory termination cash fee as evidence of deal certainty and the streaming giant's commitment to getting the transaction done.
Netflix Weighs In
Netflix (NFLX) separately welcomed the Warner Bros. board's recommendation and urged shareholders to approve the merger. Netflix co-CEOs Ted Sarandos and Greg Peters stated that the company anticipates closing the deal within 12 to 18 months, subject to regulatory approvals. They emphasized the fully negotiated cash-and-stock structure and again pointed to the $5.8 billion reverse termination fee as proof of Netflix's confidence in completing the transaction.
The streaming company reiterated that the deal includes incremental value from the planned separation of Discovery Global, which is expected to occur in the third quarter of 2026.
Warner Bros. urged shareholders to review the company's Schedule 14D-9 filing for additional details on why it believes the Paramount offer falls short.
Price Action: Warner Bros. Discovery (WBD) shares were down 1.12% at $28.57 at the time of publication on Wednesday. Paramount Skydance (PSKY) fell 2.82%, while Netflix (NFLX) rose 1.52%.
