Why Warner Bros. Discovery's board says shareholders should reject Paramount's bid and go with Netflix

Core Viewpoint - Warner Bros. Discovery (WBD) has rejected Paramount Skydance's cash offer of $30 per share, citing it as inadequate and risky compared to Netflix's cash-and-stock proposal of $27.75 per share, which is deemed to provide superior value for shareholders [1][2]. Summary by Sections Offer Comparison - Paramount's bid aims to acquire all of WBD, including its cable channels, while Netflix's offer focuses on WBD's studio, HBO, and HBO Max [2]. - WBD's board has unanimously recommended that shareholders reject Paramount's offer in favor of the Netflix merger [12][13]. Concerns with Paramount's Offer - WBD's board highlighted that Paramount's proposal does not adequately address key concerns, particularly regarding its financing structure, which relies on an "unknown and opaque revocable trust" rather than a solid commitment from the Ellison family [3][16]. - The board emphasized that the financing commitment from Paramount is not as secure as that from Netflix, which is backed by a public company with a market cap exceeding $400 billion [19][20]. Financial Implications - The Netflix merger agreement offers WBD shareholders $23.25 in cash and $4.50 in Netflix stock, along with potential future upside from Discovery Global's separation from WBD [15]. - Accepting Paramount's offer could incur significant costs for WBD, including a $2.8 billion termination fee to Netflix and approximately $1.5 billion in financing costs, totaling around $4.3 billion, or $1.66 per share for WBD shareholders [27]. Regulatory Considerations - WBD's board does not believe there is a material difference in regulatory risk between the two proposals, despite Paramount's claims of easier regulatory approval [7][24]. - Netflix has agreed to a record-setting regulatory termination cash fee of $5.8 billion, which is higher than Paramount's $5 billion break fee [24]. Strategic Review Process - The board conducted a thorough review of strategic alternatives, engaging extensively with all parties, including Paramount, over nearly three months [22]. - Despite multiple opportunities for Paramount to present a superior proposal, it failed to do so, leading to the board's continued support for the Netflix merger [23].