Warner Bros. Discovery still isn't interested in David Ellison's takeover offer — or his father's money.
For the eighth time, WBD has turned down a Paramount Skydance acquisition proposal, even as Paramount's latest offer appeared to address some of WBD's concerns with how the bid was financed.
Paramount "has repeatedly failed to submit the best proposal for WBD shareholders despite clear direction from WBD on both the deficiencies and potential solutions," WBD's board of directors wrote in a letter to shareholders posted on Wednesday morning.
Here are the two key reasons why the WBD board said it's rejecting Paramount's latest offer:
- Paramount's bid offers "insufficient value," in their view, due to added costs, such as a $2.8 billion breakup fee to Netflix.
- A perceived "lack of certainty" in Paramount's ability to close the deal, given the "extraordinary amount of debt financing."
Paramount had revised its $108 billion bid for WBD to put in writing that its $40.4 billion in equity is fully backstopped by Oracle cofounder Larry Ellison — the father of CEO David Ellison — instead of his trust, which WBD had told shareholders was "unknown and opaque" with assets and liabilities that could be subject to change.
Despite Paramount's assurances that its financing is sound, WBD is sticking with its Netflix deal, saying that Paramount's offer "is inferior given significant costs, risks and uncertainties as compared to the Netflix merger." WBD has told shareholders that regulatory risk is "not a material differentiating factor" between the Netflix and Paramount bids.
WBD's board wrote in the letter that it had "negotiated a merger with Netflix that maximizes value while mitigating downside risks, and we unanimously believe the Netflix merger is in your best interest."
Paramount doesn't have to give up its monthslong quest for WBD, the parent company of HBO, the Warner Bros. Studio, and cable networks like CNN, TNT, and TruTV.
Paramount has said it still believes its all-cash offer of $30 per share for all of WBD is superior to Netflix's cash-and-stock bid of $27.75 per share for WBD's studio and streaming assets. The Netflix-Warner Bros. deal wouldn't include legacy TV networks, which would live on in a separate company.
From here, Paramount can try to convince WBD shareholders to back its bid and force the board to reconsider. Ellison could also increase his bid for WBD and put pressure on Netflix to either fork over more money or fold.
In an SEC filing last month, Paramount disclosed that Ellison had texted WBD CEO David Zaslav that the company "did not include 'best and final' in our bid," suggesting that the company could be prepared to increase its offer.
Some media insiders expect a renewed bidding war. They include former Disney dealmaker Kevin Mayer, who had a firsthand look into Disney's fight with Comcast for Fox's studio assets in the late 2010s.
"I would be very surprised if we don't see a sweetened, and perhaps meaningfully sweetened, offer" from Paramount or Netflix, Mayer said at a UBS media conference in December.
If Paramount can't win over WBD shareholders and doesn't want to pay more, there's the option of suing its would-be acquisition target, alleging a breach of fiduciary duty to its shareholders.
Read the full letter to shareholders here:
Dear Fellow Shareholders,
As you know, at the end of last year, your Board of Directors concluded its process to maximize shareholder value by entering into our merger agreement with Netflix. Since then, Paramount Skydance ("PSKY"), a bidder in that process, has commenced a hostile tender offer to acquire WBD which it recently amended on December 22, 2025.
As described further below, your Board unanimously determined that the PSKY amended offer remains inadequate particularly given the insufficient value it would provide, the lack of certainty in PSKY's ability to complete the offer, and the risks and costs borne by WBD shareholders should PSKY fail to complete the offer. Accordingly, the Board unanimously recommends that shareholders not tender your shares into the PSKY offer. For a full discussion of the reasons for the Board's recommendation, we urge you to read the full 14D-9 filing.
PSKY Offer's Insufficient Value
PSKY's offer is inferior given significant costs, risks and uncertainties as compared to the Netflix merger. Under the Netflix merger agreement, WBD shareholders will receive significant value with $23.25 in cash and shares of Netflix common stock representing a target value of $4.50 based on a collar range in the Netflix stock price at the time of closing, which may have substantial upside.
Additionally, WBD shareholders will receive value through their ownership in Discovery Global, which will have considerable scale, a diverse global footprint, and leading sports and news assets, as well as the strategic and financial flexibility to pursue its own growth initiatives and value creation opportunities.
The Board also considered the costs and loss of value for WBD shareholders associated with accepting the PSKY offer. WBD would be obligated to pay Netflix a $2.8 billion termination fee for abandoning our merger agreement; incur a $1.5 billion fee for failing to complete our debt exchange, which we could not execute under the PSKY offer; and incur incremental interest expense of approximately $350 million. The total cost to WBD would be approximately $4.7 billion, or $1.79 per share. These costs would in effect lower the net amount of the regulatory termination fee that PSKY would pay to WBD from $5.8 billion to $1.1 billion in the event of a failed transaction with PSKY due to regulatory reasons. In comparison, the Netflix transaction imposes none of these costs on WBD.
Lack of Certainty in PSKY's Ability to Close the Transaction
The extraordinary amount of debt financing as well as other terms of the PSKY offer heighten the risk of failure to close, particularly when compared to the certainty of the Netflix merger. PSKY is a company with a $14 billion market capitalization attempting an acquisition requiring $94.65 billion of [debt and equity] financing, nearly seven times its total market capitalization. To effect the transaction, it intends to incur an extraordinary amount of incremental debt — more than $50 billion — through arrangements with multiple financing partners.
The transaction PSKY is proposing is in effect a leveraged buyout ("LBO"). In fact, it would be the largest LBO in history with $87 billion of total pro forma gross debt and an estimated gross leverage of approximately 7x 2026E EBITDA before synergies. The WBD Board considered that an LBO structure introduces risks given the acquiror's reliance on the ability and willingness of its lenders to provide funds 2 at close. Changes in the performance or financial condition of either the target or acquiror, as well as changes in the industry or financing landscapes, could jeopardize these financing arrangements. Many prior large LBOs illustrate that acquirors or their equity and/or debt financing sources can, and do, seek to assert failures of closing conditions in order to terminate a transaction or renegotiate transaction terms. This aggressive transaction structure poses materially more risk for WBD and its shareholders when compared to the [conventional structure of the] Netflix merger.
The risks inherent in the LBO structure are exacerbated by the amount of debt PSKY must incur, its current financial position and future prospects, as well as the lengthy period to close the transaction — which PSKY itself estimates to be 12-18 months following signing. PSKY already has a "junk" credit rating and it has negative free cash flows with a high degree of dependency on its legacy linear business. Certain fixed obligations that PSKY has incurred or may incur prior to closing, such as the multi-year programming and sports licensing deals, could further strain its financial condition.
Further, the operating restrictions between signing and closing imposed on WBD by the PSKY offer could damage our business, allowing PSKY to abandon the offer. The onerous covenants include, among others, restricting WBD's ability to modify, renew or terminate affiliation agreements. These restrictions may hamper WBD's ability to perform and could lead PSKY to assert that WBD has suffered a "material adverse effect," enabling PSKY and its financing partners to terminate the transaction or renegotiate the terms of the transaction.
In contrast, Netflix is a company with a market capitalization of approximately $400 billion, an investment grade balance sheet, an A/A3 credit rating and estimated free cash flow of more than $12 billion for 2026. The merger agreement with Netflix also provides WBD with more flexibility to operate in a normal course until closing. Given these factors, the Board determined that the Netflix merger remains superior to PSKY's amended offer.
Consequences for WBD Shareholders Should PSKY Fail to Close the Transaction
If PSKY fails to close its offer, WBD shareholders would incur significant costs and potentially considerable value destruction. In addition to potentially enabling PSKY to abandon or amend its offer, the operating restrictions that PSKY would impose on WBD between signing and closing could impair WBD's financial condition and ability to maintain its competitive position in the markets in which it operates, and hinder its ability to retain key talent. This includes prohibiting WBD from pursuing the planned separation of Discovery Global and Warner Bros., which was designed to derisk our businesses by allowing each to focus on its own strategic plan. The PSKY offer would also prevent WBD from completing the contemplated debt exchange and refinancing our $15 billion bridge loan, which would limit our financial flexibility. If the PSKY offer fails to close, WBD shareholders would be left with shares in a business that has been restricted from pursuing its key initiatives for up to 18 months.
Further, WBD shareholders would receive insufficient compensation for the damage to our businesses should the PSKY offer not close. The $1.1 billion net amount of the regulatory termination fee that PSKY would pay to WBD for regulatory reasons represents an unacceptably low 1.4% of the transaction equity value and would not come close to helping WBD address the likely damage to our businesses.
In contrast, should Netflix fail to complete the merger for regulatory reasons, WBD would receive a $5.8 billion termination fee and WBD shareholders would still benefit from the initiatives that the Board and 3 management team are implementing to secure the value of our businesses and ensure their long-term success, including the planned separation of Discovery Global and Warner Bros.
The PSKY Offer Is Not Superior, or Even Comparable, to the Netflix Merger
PSKY has repeatedly failed to submit the best proposal for WBD shareholders despite clear direction from WBD on both the deficiencies and potential solutions. The WBD Board, management team and our advisors have extensively engaged with PSKY representatives and provided it with explicit instructions on how to improve each of its offers. Yet PSKY has continued to submit offers that still include many of the deficiencies we previously repeatedly identified to PSKY, none of which are present in the Netflix merger agreement, all while asserting that its offers do not represent its "best and final" proposal.
PSKY's transaction team, including many of their employees, several law firms, investment and lending banks and consultants, had several months to engage extensively with WBD. They are well aware of the reasons behind the Board's determination that the Netflix merger agreement is superior to its offer. If on December 4 PSKY did not recognize the weaknesses of its proposal when the Board concluded the process, it has now had several weeks to study the Netflix merger agreement and adjust its offer accordingly. Instead PSKY has, for whatever reason, chosen not to do so.
Your Board negotiated a merger with Netflix that maximizes value while mitigating downside risks, and we unanimously believe the Netflix merger is in your best interest. We are focused on advancing the Netflix merger to deliver its compelling value to you.
Sincerely,
The Warner Bros. Discovery Board of Directors
