Warner Bros. Discovery Recommends Shareholders Reject Paramount Tender Offer
Warner Bros. Discovery, Inc. (NASDAQ: WBD) has made headlines with its Board of Directors unanimously advising shareholders to reject the amended tender offer from Paramount Skydance (NASDAQ: PSKY). This decision comes as the Board emphasizes that Paramount's offer fails to meet the criteria for a "Superior Proposal," especially when compared to the existing merger agreement with Netflix, Inc. (NASDAQ: NFLX) announced on December 5, 2025.
Key Reasons for the Board's Recommendation
The Board, led by Chair Samuel A. Di Piazza, Jr., articulated several crucial factors influencing their decision. They found the Paramount offer inadequate across multiple dimensions:
- Insufficient Value: Paramount's offer offers little value with considerable debt financing risks.
- Increased Risk of Closure: The likelihood of PSKY's ability to finalize the transaction is uncertain compared to the Netflix merger.
- Potential Costs to Shareholders: If the PSKY offer fails, significant financial ramifications for WBD shareholders could ensue.
Financial Implications of the PSKY Offer
According to the Warner Bros. Discovery Board, the current PSKY offer poses various financial risks. Notably, if WBD were to abandon its merger with Netflix, it would incur a termination fee of $2.8 billion. Moreover, a failure to execute a debt exchange could result in an additional penalty of $1.5 billion. Overall costs for WBD could total approximately $4.7 billion, translating to around $1.79 per share.
In stark contrast, the Netflix merger is structured to avoid such costs, offering WBD shareholders $23.25 in cash and Netflix stock nearing a target value of $4.50 at closing time. This setup promises significant future value creation.
Risks Associated with PSKY's Proposed Acquisition
The highly leveraged nature of the PSKY offer raises alarms regarding its feasibility. With PSKY's market capitalization at approximately $14 billion, the acquisition hinges on acquiring nearly $94.65 billion in financing, a staggering seven times its market value. The Board notes this structure resembles a leveraged buyout (LBO), which is fraught with risk.
PSKY intends to take on over $50 billion in new debt—this would create what could be the largest LBO in history, with $87 billion in total gross debt. Notably, PSKY's "junk" credit rating, coupled with negative free cash flow, further complicates the situation, leading to uncertainties about whether they can secure the necessary funding to close the deal.
Shareholder Consequences if PSKY's Offer Fails
Shareholders face significant negative outcomes if Paramount's offer falters. Should PSKY be unable to complete the transaction, shareholders may experience value destruction and financial instability. The operating constraints imposed by PSKY could jeopardize WBD’s competitive position in the market.
The Board implores shareholders to consider the risks of accepting PSKY's tender offer and emphasizes the value and security of their ongoing merger agreement with Netflix, which offers far greater certainty and financial stability.
The Future of Warner Bros. Discovery and Netflix
As Warner Bros. Discovery moves forward, its partnership with Netflix, valued at approximately $400 billion, represents a safer bet for shareholders compared to the uncertain terrain of the PSKY takeover. Netflix's strong market position, healthy credit rating, and expected cash flow for 2026—estimated at more than $12 billion—provide a solid foundation for potential value generation.
In conclusion, the Warner Bros. Discovery Board stands firm in its support of the Netflix merger, urging shareholders to reject the PSKY offer in favor of a more promising and secure financial future.