Warner Bros. Discovery moves to reject Paramount’s hostile bid, backs Netflix deal

Warner Bros. Discovery is preparing to advise its shareholders to reject a hostile takeover bid from Paramount Skydance, citing concerns over financing, regulatory uncertainty and the overall structure of the offer, according to reports citing people familiar with the matter.

After reviewing the proposal, Warner Bros.’ board has concluded that Paramount’s tender offer falls short of the value and certainty provided by the company’s existing agreement with Netflix, the people said, as per a Bloomberg report. The board is expected to formally urge shareholders to turn down the bid, potentially as early as Wednesday, when its response to the tender offer could be filed. No final decision has been made, and discussions are continuing, the report added.

A central issue for Warner Bros. is the financing underpinning Paramount’s proposal. The bid is backed in part by equity commitments tied to a trust that oversees the wealth of Larry Ellison, the software billionaire and father of Paramount Skydance chief executive David Ellison. Because the trust is revocable, assets could be withdrawn at any time, raising concerns within Warner Bros. about the reliability of the funding and the company’s ability to seek recourse if the backing were to change.

Those concerns have been compounded by recent developments among Paramount’s supporters. One backer, Affinity Partners, the investment firm led by Jared Kushner, said on Tuesday that it was withdrawing from the transaction, citing the involvement of “two strong competitors.”

Warner Bros.’ directors are also uneasy about the operational constraints the company could face during what is expected to be a lengthy regulatory review. They believe Paramount’s proposal does not provide sufficient flexibility for Warner Bros. to run its business or manage its balance sheet during the year or more it could take for a transaction to receive approval.

Paramount has sought to address some of those objections. In a regulatory filing last week, the company said it had resolved concerns related to Warner Bros.’ ability to refinance debt and to the payment of a $5 billion breakup fee, which it said would be backstopped by the Ellison family. Paramount has also modified other aspects of its bid at Warner Bros.’ request. About $1 billion in financing from China’s Tencent Holdings was withdrawn after concerns emerged that the funding could raise national security issues with U.S. regulators.

Paramount, which owns MTV and the Paramount+ streaming service, has offered more than $108 billion including debt, for all of Warner Bros. Three days after Warner Bros. and Netflix announced their agreement, Paramount bypassed the board and took its offer directly to investors by launching a public tender offer.

Under the terms of its agreement with Netflix, Warner Bros. is barred from actively soliciting competing bids but is permitted to consider unsolicited proposals. If a superior offer emerges, the company must give Netflix the opportunity to match it, a provision intended to preserve the original deal if possible.