Paramount Skydance has filed a lawsuit against Warner Bros Discovery (WBD) and CEO David Zaslav in Delaware court, marking a significant escalation in its hostile takeover attempt. The legal action seeks to compel WBD to provide additional details about its sale process and the proposed Netflix transaction structure.

Legal Action Details

The lawsuit centers on Paramount's claims that WBD has not provided sufficient transparency for shareholders to make informed decisions. According to Paramount Skydance CEO David Ellison, the current disclosures fail to adequately explain several critical aspects of WBD's business dealings.

Board Rejection and Competing Offers

The lawsuit follows WBD's board reiterating its recommendation that shareholders reject Paramount's revised offer. The board advised investors to decline the amended bid, which notably did not include a higher purchase price despite previous rejections.

Paramount has consistently maintained that its all-cash offer presents superior value compared to WBD's agreement with Netflix. The company has repeatedly questioned the fairness of the sale process and challenged the board's assessment of competing proposals.

Netflix Transaction Background

Warner Bros Discovery previously agreed to a significant restructuring involving Netflix, which includes:

• Sale of HBO Max streaming platform to Netflix
• Transfer of film studio operations to Netflix
• Spin-off of cable television networks portfolio into separate listed entity

Paramount had made multiple unsolicited approaches to acquire WBD's assets, including global television networks, but these were consistently rejected before the Netflix agreement was finalized.

Takeover Timeline

Following the Netflix agreement announcement, Paramount Skydance made its takeover bid public, offering to acquire the entire company. While the company has adjusted certain terms of its proposal in response to feedback, it has not increased the overall offer value, leading to continued board resistance and the current legal dispute.

Paramount Skydance Corp. has escalated its corporate battle against Warner Bros. Discovery Inc. by filing a lawsuit and announcing plans to nominate new directors to challenge the media giant's planned merger with Netflix Inc. The aggressive move represents a significant escalation in the takeover battle for one of Hollywood's major studios.

Legal Challenge and Board Nominations

Paramount CEO David Ellison announced in a public letter to the Warner Bros. board that the company would challenge the Netflix deal through multiple avenues. The strategy includes nominating a new slate of directors and pursuing legal action in Delaware court to force greater disclosure about the transaction details.

Ellison stated the challenge would occur either at Warner Bros.' regular annual meeting or at a special meeting convened to approve the Netflix deal, should the company call one.

Competing Bid Valuations

The corporate dispute centers on significantly different valuations for Warner Bros.' assets. Paramount has maintained its position that its offer provides superior value to shareholders compared to the Netflix proposal.

Paramount accused Warner Bros. of failing to adequately disclose how it values the cable-TV assets that would be spun off before the Netflix transaction. The company plans to seek changes to Warner Bros.' bylaws to allow shareholders to vote specifically on the spinoff component.

Market Response and Transaction Structure

The announcement triggered immediate market reactions across all three companies involved in the dispute. Warner Bros. shares declined 1.50% at the start of New York trading, while Netflix experienced slight gains and Paramount remained unchanged.

The Netflix deal includes a complex structure involving the spinoff of cable channels, including CNN and TNT, to Warner Bros. shareholders before the main transaction closes. This structure has become a key point of contention in Paramount's legal challenge.

Strategic Positioning

Paramount emphasized its commitment to completing its tender offer, with Ellison encouraging shareholders to tender their shares under the previously announced proposal. The company maintains that its bid for all Warner Bros. assets represents superior value compared to Netflix's partial acquisition offer.

"We are committed to seeing our tender offer through," Ellison stated in his letter to the Warner Bros. board. "We understand, however, that unless the WBD board of directors decides to exercise its right to engage with us under the Netflix merger agreement this will likely come down to your vote at a shareholder meeting."