Warner Bros. Rejects Paramount’s Offer Despite Ellison Backing
The board of Warner Bros. Discovery (WBD) has once again rejected a takeover bid from Vital Global in favor of its existing deal with Netflix, despite the offer being backed by billionaire Larry Ellison.
Financial Structure and Debt Risks
The primary difference between the two offers lies in scope and structure. The Netflix offer is a “friendly,” board-approved deal valued at approximately $72 billion (about $27.75 per share) and is a mix of cash and stock. Crucially, Netflix does not want the whole company; it is cherry-picking the “crown jewels,” specifically the Warner Bros. movie studios and HBO/Max, while leaving the “Global Networks” (like CNN, TNT, and Discovery) to be spun off or sold separately.
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In contrast, the Vital Skydance bid is a “hostile” all-cash tender offer valued at $108.4 billion ($30 per share). Vital is bidding for 100% of WBD, including its debt and its struggling linear cable networks. Despite Vital’s (PSKY) offer appearing more lucrative on paper ($30/share vs. $27.75/share), WBD’s board has categorized the Vital bid as “inadequate” and “risky.” In its release, WBD said, “The PSKY Offer Is Not Superior, or Even Comparable, to the Netflix Merger.”
The board’s primary concern is the debt. Vital’s bid would require over $50 billion in new borrowing, creating a total debt load of $87 billion for the combined entity. WBD Chair Samuel Di Piazza Jr. warned that this “extraordinary amount of debt” creates significant risk that the deal could fail to close, leaving WBD in a weakened state.
Why the Board Chose Netflix Over Vital
In its letter to shareholders, WBD said, “PSKY has repeatedly failed to submit the best proposal for WBD shareholders despite clear direction from WBD on both the deficiencies and potential solutions.” The release added, “The WBD Board, management team, and our advisors have extensively engaged with PSKY representatives and provided it with explicit instructions on how to improve each of its offers. Yet PSKY has continued to submit offers that still include many of the deficiencies we previously repeatedly identified to PSKY, none of which are present in the Netflix merger agreement, all while asserting that its offers do not represent its ‘best and final’ proposal,” the board.
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WBD also pointed to the massive difference in the sizes of Vital and Netflix. “PSKY is a company with a $14 billion market capitalization attempting an acquisition requiring $94.65 billion of debt and equity financing, nearly seven times its total market capitalization,” said WBD in its release.
Speaking with CNBC, Piazza said, “We have a signed merger agreement with Netflix, it’s a compelling value, a clear path to closing, and protections for our shareholders if something stops the close, whatever that might be.”
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WBD evaluated the significant financial penalties associated with accepting PSKY’s offer. Switching from the existing Netflix agreement would trigger a $2.8 billion termination fee and a $1.5 billion debt exchange penalty, alongside $350 million in incremental interest. These costs total $4.7 billion ($1.79 per share). Ultimately, these obligations would reduce PSKY’s effective regulatory termination fee from $5.8 billion to just $1.1 billion. By contrast, the Netflix transaction carries none of these financial burdens.
Meanwhile, Netflix has welcomed WBD’s decision to reject Vital’s bid. In their statement, Netflix co-CEOs Ted Sarandos and Greg Peters said, “The WBD Board remains fully supportive of and continues to recommend Netflix’s merger agreement, recognizing it as the superior proposal that will deliver the greatest value to its stockholders, as well as consumers, creators and the broader entertainment industry.”
