Warner Bros Discovery's board has unanimously rejected Paramount Skydance's latest hostile takeover attempt, calling the revised $108.4 billion bid inadequate and inferior to its existing $82.7 billion acquisition deal with Netflix. The decision, announced in a letter to shareholders on Wednesday, reinforces the board's commitment to the Netflix transaction while highlighting significant concerns about Paramount's financing structure and operational restrictions.

Board Cites Excessive Debt and Execution Risks

The Warner Bros Discovery board expressed serious concerns about Paramount's financing structure in its formal rejection. The company's directors voted against the $30-per-share cash offer on Tuesday, which was revised on December 22 with Larry Ellison's personal guarantee of $40.40 billion in equity financing.

According to the board's assessment, Paramount's financing plan would burden Warner Bros Discovery with $87.00 billion in debt upon acquisition completion, potentially creating the largest leveraged buyout in corporate history. The board noted that this "extraordinary amount of debt financing" heightens the risk of failure to close, particularly when compared to the certainty of the Netflix merger.

Operational Restrictions and Financial Costs

The board detailed significant operational constraints that Paramount's proposal would impose during the 12 to 18 months before deal closure. These restrictions include limits on entering technology infrastructure contracts and barring the planned spin-out of cable television networks into Discovery Global, which the board argues could damage Warner Bros' business operations.

The board revealed that terminating its Netflix agreement would cost $4.70 billion, leaving only $1.10 billion of Paramount's $5.80 billion termination fee as actual benefit to shareholders.

Market Response and Stakeholder Positions

Netflix co-CEOs Ted Sarandos and Greg Peters welcomed Warner Bros' decision on Wednesday, recognizing their deal "as the superior proposal that will deliver the greatest value to its stockholders, as well as consumers, creators and the broader entertainment industry." Both Warner Bros and Netflix shares rose 0.60% while Paramount dipped 0.60%.

However, investor opinions remain divided. Mario Gabelli, whose Gabelli Funds holds about 5.70 million shares, said he is "likely" to tender his shares to Paramount, calling its all-cash offer more straightforward with a faster path to regulatory approval.

Strategic Assets and Valuation Disputes

The acquisition battle centers on Warner Bros Discovery's valuable entertainment portfolio, including major franchises such as Harry Potter, DC Comics universe, Game of Thrones, and Friends, plus classic films like "Casablanca" and "Citizen Kane." A major sticking point remains the valuation of the planned Discovery Global spin-off, which includes cable networks CNN and TNT Sports. Analysts value the cable channels at up to $4.00 per share, while Paramount suggests just $1.00 per share.

Warner Bros Chairman Samuel Di Piazza told CNBC that the company remains open to a transaction but emphasized that Paramount must "put something on the table that is compelling." The board concluded that Netflix's deal maximizes value while mitigating downside risks, maintaining their position that the Netflix merger serves shareholders' best interests.

Warner Bros. Discovery Inc. is preparing to reject another takeover bid from Paramount Skydance Corp., despite recent amendments to the proposal including a personal guarantee from billionaire Larry Ellison. The Warner Bros. board, which has not made a final determination, is scheduled to meet next week to address the revised offer.

Board Concerns Over Unchanged Financial Terms

The primary concern among board members centers on Paramount's unchanged financial offer. According to people familiar with the matter, the media conglomerate maintains its position that Paramount's proposal remains inferior to the accepted deal with Netflix Inc.

Ellison Family's Media Empire Strategy

Paramount is controlled by billionaire Larry Ellison and his son David, a movie producer who is assembling a media empire. The Ellisons gained control of Paramount in August and have since submitted multiple bids for Warner Bros., seeking to add another original Hollywood studio to their portfolio and increase their streaming scale.

Paramount has amended its offer twice since the initial December bid. The most recent modification includes an assurance from Larry Ellison that he would personally guarantee $40.40 billion in equity financing and other commitments, demonstrating the family's commitment to the acquisition.

Strategic and Financial Obstacles

Warner Bros. board members have identified several concerns beyond the financial terms that remain unresolved:

Market Dynamics and Shareholder Expectations

Warner Bros. has argued in public filings that the Netflix offer remains superior for multiple reasons. The company emphasizes Netflix's position as Hollywood's most valuable company with a market value exceeding $400.00 billion, compared to Paramount's more constrained financial position.

Several shareholders have indicated expectations that Paramount will need to increase its financial offer to gain board approval. The Warner Bros. board continues to wait for improved financial terms before reconsidering the proposal, with investors anticipating a larger financial offer from Paramount.

Corporate Assets at Stake

The takeover battle involves significant media assets on both sides. Paramount owns its namesake studio and MTV, while Warner Bros. controls HBO and CNN. Netflix's current deal focuses specifically on Warner Bros.' studio and streaming operations, representing a more targeted acquisition approach compared to Paramount's comprehensive takeover proposal.