LONDON — Warner Bros. Discovery’s board on Wednesday sent a formal letter to shareholders urging them to reject Paramount Skydance’s hostile $30-per-share tender offer and to support the company’s existing merger agreement with Netflix, arguing that the streaming giant’s binding cash-and-stock deal represents superior and more certain value. The board’s Schedule 14D-9 filing framed the choice as one between headline price and execution certainty and said the Paramount structure created material financing and timing risks that could reduce the expected payoff to shareholders.
Why the board prefers Netflix
In its Schedule 14D-9 the board laid out a point-by-point comparison and concluded that Netflix’s transaction offers enforceable commitments and lower execution risk. The recommended deal is framed as a binding merger agreement that transfers Warner’s studios, its film and television library, and the HBO Max streaming service while preserving the linear networks through a planned separation into a distinct public company. The structure, the board said, locks in value now and leaves shareholders exposed to future upside in the separated networks. Directors argued that the combination of cash, stock and separation mechanics creates a clearer path to realizing both near-term and long-term value for investors.
The board emphasised the mechanics underpinning Netflix’s bid: $23.25 in cash per share plus $4.50 in Netflix stock subject to a collar mechanism intended to limit volatility in the equity component. That mix, the directors wrote, hedges market risk while delivering significant cash upfront and includes enhanced termination protections designed to reduce the chance of adverse financing outcome. The filing pointed to debt commitments and termination provisions the board judged to be more reliable than the alternative. For the directors, legal enforceability and predictable financing were the deciding considerations rather than headline per-share arithmetic.
What the Paramount bid actually proposes
Paramount Skydance’s hostile bid offers $30 in cash per WBD share for the entire company, an offer that on a simple headline basis delivers a higher immediate payout to holders. Warner’s filing contested the solidity of the backing behind that price, noting portions of the equity commitment are linked to a revocable trust connected to the Ellison family and to other external parties whose liabilities are not publicly disclosed. The board said the cross-conditional nature of the package means parts of the financing can be amended or withdrawn, creating execution risk.
In its letter the board described the financing as a cross-conditional package that pairs roughly $41 billion of equity commitments with about $54 billion of debt financing and warned that trust structures capped liability and exposed shareholders to downside if support shifted. The directors highlighted that a revocable trust that can be altered or recharacterized is not equivalent to a fully backstopped, unconditional equity commitment. The board concluded those structural traits could leave shareholders materially worse off despite the higher headline cash number.
Financing, fees and risk-adjusted math
At the heart of the decision is a risk-adjusted valuation exercise: a higher headline cash price does not automatically translate into a higher expected payout if the cash is conditional or if closing triggers extra costs. Warner’s filing quantified potential costs of switching to the hostile path, noting the possibility of a $2.8 billion termination payment in some scenarios and an estimated $1.5 billion of incremental financing and covenant costs that could reduce net proceeds to shareholders. Those quantified contingencies, the board said, materially alter the expected payoff to holders once timing and fees are accounted for.
The board also pointed to the relative sizes and credit profiles of the bidders, arguing an acquirer loaded with leverage could limit strategic flexibility and pressure content budgets. An all-cash buyer that relies heavily on debt can create immediate pressure to cut costs and to prioritize deleveraging over content investment, the directors argued. For the board, the enforceability of commitments and the reduction of execution risk outweighed a modest headline premium on a per-share basis.
Regulatory and political dynamics
Both bidders have publicly advanced legal and regulatory arguments for why their proposals should clear competition reviews, but the board said its advisers found no material variance in regulatory risk between the two paths once mitigation measures were considered. Netflix emphasised commitments to theatrical distribution and to operating studios as content producers, while Paramount framed a full-company cash acquisition as a potentially more straightforward antitrust path. After reviewing multiple scenarios the board concluded regulatory risk did not justify abandoning a binding, negotiated agreement for a conditional cash tender.
Political dynamics and public scrutiny complicated the debate. The identities of certain financiers and the involvement of politically connected backers drew additional attention and helped prompt at least one consortium participant to withdraw from Paramount’s backers, the directors noted. That withdrawal heightened the board’s concerns about the resilience of the rival financing and reinforced its decision to recommend the Netflix transaction as the more certain option for shareholders.
Market reaction and the path forward
Markets reacted quickly but with nuance as investors tried to price competing probabilities. Warner shares moved as traders considered both the likelihood shareholders would tender to Paramount and the net effect after termination fees and financing costs, while Netflix stock adjusted to a higher probability that its agreement would proceed. The hostile bidder’s financial backers and the wider media complex showed volatility as markets assessed the reliability of funding and the prospect of a drawn-out tender.
Procedurally, the 14D-9 filing is public and Paramount’s tender remains open for a defined window, giving institutional holders an immediate decision. Advisers and lawyers will watch for any new, unconditional financing documentation from the Paramount consortium or for amendments that remove the structural gaps identified by the board. If Paramount or its backers can produce legally binding, unconditional commitments that address the board’s concerns, the calculus could change quickly. Absent such cures, Warner’s directors have urged shareholders to prioritise enforceability and financing certainty over headline price.
Written by Nick Ravenshade for NENC Media Group, original article and analysis.
Sources: Reuters, PR Newswire, SEC (Form 425), Reuters (Affinity/financing reports), Associated Press
Photo: Thibault Penin / Unsplash
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