WBD again rejects Paramount offer despite Larry Ellison’s Backstop

The Board of Directors of Warner Bros. Discovery ( WBD ) has again rejected a takeover bid from Paramount Global in favor of its existing deal with Netflix, despite billionaire Larry Ellison backing the offer.

The main difference between the two offerings lies in scope and structure. Netflix’s offer is a “friendly,” board-approved deal valued at about $72 billion (about $27.75 per share) and a mix of cash and stock. The bottom line is that Netflix doesn’t want the whole company; it’s a selection of “crown jewels”, namely the Warner Bros. film studios. and HBO/Max, while letting the “global networks” (like CNN, TNT and Discovery) be spun off or sold separately.

WBD again rejects Paramount’s offer

In contrast, the Paramount Skydance offer is a “hostile” all-cash offer valued at $108.4 billion ($30 per share). Paramount is bidding for 100% of WBD, including its debt and problems with linear cable networks.

Despite Paramount’s ( PSKY ) offer appearing more lucrative on paper ($30/share vs. $27.75/share), the WBD board categorized Paramount’s offer as “inadequate” and “risky.” WBD said in its release: “PSKY’s offer is not superior or comparable to the Netflix merger.”

In its letter to shareholders, WBD said: “PSKY has repeatedly failed to present the best proposal for WBD shareholders despite clear guidance from WBD regarding the shortcomings and potential solutions.”

The report added: “WBD’s board, management team and our advisors engaged extensively with representatives of PSKY and provided it with explicit instructions on how to improve each of its bids. Yet PSKY continued to submit bids that still contained many of the deficiencies we had previously repeatedly identified with PSKY, none of which are contained in the Netflix merger agreement, all while claiming that its bids did not represent its “best proposal” and “best advice”.

The board’s main concern is debt. Paramount’s offer would require more than $50 billion in new borrowings, creating $87 billion in total debt for the combined entity. WBD Chairman Samuel Di Piazza Jr. warned that this “extraordinary amount of debt” created a significant risk that the deal could fail to close, leaving WBD in a weakened state.

Netflix is ​​a much bigger company than Paramount

In his release, he also pointed out the massive size difference between Paramount and Netflix. “PSKY is a US$14 billion market capitalization company that is seeking an acquisition requiring US$94.65 billion in debt and equity financing, which is nearly seven times its total market capitalization,” WBD said in a statement.

talk to CNBCPiazza said: “We have a merger agreement signed with Netflix, it’s a compelling value, a clear path to closing and protection for our shareholders if something stops closing, whatever it is.”

WBD will have to pay Netflix’s termination costs

The Board of Directors assessed the significant financial penalties associated with accepting PSKY’s offer. Moving away from Netflix’s existing contract would trigger a $2.8 billion termination fee and a $1.5 billion debt swap penalty, along with $350 million in incremental interest. These costs amount to $4.7 billion ($1.79 per share). Ultimately, these obligations would reduce the effective regulatory fee to terminate PSKY from $5.8 billion to just $1.1 billion. In contrast, the Netflix transaction carries none of these financial burdens.

Meanwhile, Netflix welcomed WBD’s decision to reject Paramount’s offer. Netflix CEOs Ted Sarandos and Greg Peters said in a statement: “The WBD Committee remains fully supportive of and continues to recommend the Netflix Merger Agreement, recognizing it as an excellent proposition that will deliver the greatest value to its shareholders, as well as consumers, creators and the broader entertainment industry.”

Why does Netflix want to buy WBD’s assets?

By owning this content, Netflix eliminates billions in future licensing costs and the risk of titles being pulled by rivals. The sheer volume of new content reduces “hit-rate risk” and strengthens the value proposition for its subscribers worldwide. As Netflix Co-CEO Ted Sarandos noted, the mission to “entertain the world” is better achieved by combining their “culture-defining titles” with Warner Bros.’ a century-old heritage.

The merger brings together the world’s largest subscription streaming service with HBO Max, a premium and critically acclaimed competitor. Analysts predict the combined entity will control more than 21% of US streaming viewership, creating a significant market gap between Netflix and its remaining competitors such as Disney+ and Amazon.

Netflix expects to achieve at least $2-3 billion in annual cost savings by the third year. This will come from the elimination of duplicate services (such as the merger of HBO Max with the Netflix platform), the integration of the production infrastructure and the optimization of back-office functions. This massive savings provides a financial cushion to reinvest in original content or pass savings on to consumers through bundled deals.

Netflix will acquire one of Hollywood’s most powerful, century-old production and global theatrical distribution studios. This vertical integration provides greater control over the entire production cycle, from green light to global release, expanding studio capabilities and production capacity

Why Paramount Is Interested in Buying Warner Bros. Discovery?

Paramount’s interest in acquiring Warner Bros. Discovery is driven by a desire to survive quickly at scale. In a landscape dominated by tech giants like Netflix, Amazon and Disney, Paramount CEO David Ellison sees the merger as the only way to transform Paramount from a “vulnerable legacy player” to a “global media titan.”

Streaming is a big game these days, where only the biggest survive. By combining Paramount+ with Max (HBO), the new entity would control the fourth largest streaming library in the world with more than 207 million subscribers. This would give the combined company the leverage needed to negotiate better prices with advertisers and reduce the churn that plagues smaller services.

Additionally, the deal will create the most powerful sports broadcasting platform in history, making the combined company an essential partner for every cable and satellite provider in the world.

The WBD deal would face regulatory scrutiny

Meanwhile, there are potential antitrust hurdles in acquiring WBD. A Paramount-WBD merger would bring CBS News and CNN under the same corporate roof. Regulators often view the consolidation of major news organizations as a threat to “media pluralism” and democratic discourse. That alone could force the sale of one of the networks.

Both companies own “legacy” film studios (Paramount Pictures and Warner Bros. Pictures). A reduction in the number of major Hollywood studios from five to four would likely be seen as detrimental to competition in film production and distribution, which could raise cinema costs and reduce content diversity.