If corporate mergers were a season of The Bachelor, Warner Bros. Discovery just denied Paramount a rose in the most dramatic fashion possible.
While the rest of the industry braces for consolidation, David Zaslav seems intent on engineering the most complex breakup in media history.
As of December 18, the takeover battle has officially shifted from the boardroom to the trenches.
According to a filing with the US Securities and Exchange Commission (SEC) late yesterday, the WBD Board of Directors unanimously rejected Paramount Skydance’s hostile advance.
In a formal response to the unsolicited US$108.4 billion tender offer, the board urged shareholders to ignore the cash dangling before them and stick with the ‘superior’ merger agreement signed with Netflix earlier this month.
The ‘Illusory’ billions
The rejection letter was blunt. The WBD Board, led by Chair Samuel A. Di Piazza Jr., labelled the Paramount offer inadequate and ‘illusory’ in a press statement released alongside the filing.
At the heart of this rejection lies a dispute over the quality of the money involved. Paramount has put a headline offer of US$30 per share on the table.
While this technically beats the implied value of roughly US$27.75 for the Netflix deal, the WBD board does not buy the financing.
The Wall Street Journal reports that the Board views the ‘full backstop’ promised by the Ellison family as an ‘opaque revocable trust’ rather than a secured commitment.
In plain English, WBD suggests the money might not actually be there when the cheque clears. They claim this trust fund structure poses too much risk compared to the relative certainty of Netflix stock.
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Netflix breaks it up
The board is instead doubling down on the deal they signed on 5 December.
This agreement is a complex piece of corporate origami that involves splitting WBD in two. Netflix would absorb the crown jewels by acquiring the Warner Bros. film and TV studios, as well as the HBO library.
Meanwhile, the plan spins off the linear TV assets into a new public entity dubbed ‘Discovery Global.’ It is a strategy that effectively says, “We will take the premium content, you keep the declining cable revenue.”
The hostile alternative
Paramount Skydance wants the whole pie.
Their hostile bid appeals directly to shareholders with an all-cash offer that avoids the messiness of spinning off a new company.
They argue their deal provides immediate liquidity and sidesteps the regulatory nightmare of combining the two biggest premium streamers in the world.
They have a point. Analysts at Bloomberg noted earlier this week that a Netflix-HBO combination will almost certainly face a buzzsaw of antitrust review in Washington and Brussels.
Washington fears Netflix will underpay writers because it lacks competition.
Brussels fears Netflix will overcharge consumers for the same reason.
Both have the power to sue to block the deal, which could lead to years of purgatory in court.
Essentially, Netflix plus WBD looks like a regulatory red light as it creates a titan. Paramount plus WBD looks like a yellow one because two smaller giants lean on each other to survive.
Paramount argues its path to approval is smoother, potentially aided by the Ellison family’s political connections.
What happens next?
The ball is now in the court of WBD shareholders.
They must decide whether to trust their board’s preference for a strategic marriage with Netflix or grab the US cash Paramount is waving from the sidelines.
Market volatility suggests investors are torn between the ‘safer’ Netflix deal and the higher-priced, yet riskier, Paramount bid. For now, Zaslav and the board have made their choice.
Whether the shareholders agree is the billion-dollar question.