Warner Bros. Discovery board rejects Paramount tender offer

Warner Bros. Discovery Inc. (NASDAQ: WBD) announced its board of directors unanimously recommended shareholders reject a tender offer from Paramount Skydance (NASDAQ: PSKY), reaffirming support for its planned merger with Netflix.

The board determined PSKY's offer launched December 8 does not constitute a "Superior Proposal" under terms of WBD's merger agreement with Netflix announced December 5. The board cited inadequate value and significant risks in the Paramount offer.

Under the Netflix agreement, WBD shareholders would receive $23.25 in cash plus $4.50 in Netflix common stock based on a collar range of $97.91 to $119.67 in Netflix's stock price at closing, plus shares in a newly formed entity called Discovery Global.

The board raised concerns about PSKY's financing structure, noting the absence of an equity backstop from the Ellison family despite previous assurances. Instead, PSKY proposed relying on what WBD described as an "unknown and opaque revocable trust" for a $40.65 billion equity commitment.

WBD's board stated the revocable trust arrangement includes a liability cap of 7% of the commitment, or $2.8 billion on the $108.4 billion transaction, for damages even in cases of willful breach.

The company noted potential additional costs to shareholders if the PSKY offer were accepted, including a $2.8 billion termination fee to Netflix and approximately $1.5 billion in financing costs from a planned debt exchange that would not be permitted under the PSKY proposal.

WBD filed a Schedule 14D-9 solicitation statement with the Securities and Exchange Commission detailing the board's recommendation. Allen & Company, J.P. Morgan and Evercore are serving as financial advisors to Warner Bros. Discovery.

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