WBD board backs Netflix as deal certainty trumps richer Paramount cash bid

Netflix’s planned takeover of Warner Bros. has moved a step closer, but investors should treat the board’s backing as the start of the hard part, not the endgame.

Warner Bros. Discovery’s board has urged shareholders to approve the agreed merger with Netflix and to spurn a hostile cash bid from Paramount Skydance. The board argues that the Netflix deal, struck on 5 December, offers greater certainty and a cleaner path to completion than Paramount’s higher headline offer.

Under the agreed terms, Netflix will acquire Warner Bros., including its film and television studios, HBO and HBO Max, once WBD has spun off its Global Linear Networks business into a separate company called Discovery Global. The deal values Warner Bros. Discovery at $27.75 a share, made up of $23.25 in cash and $4.50 in Netflix stock, implying an equity value of about $72.0 billion and an enterprise value of $82.7 billion.

On paper, that looks inferior to Paramount Skydance’s hostile cash bid of $30 a share, worth around $108 billion in total. The question for shareholders is why the board prefers less money.

The answer lies in structure, funding and regulatory risk. The Netflix offer is fully negotiated, with committed bank financing and a clear separation plan for the legacy cable networks, which stay behind in Discovery Global. By contrast, the WBD board has dismissed the Paramount Skydance proposal as “illusory”, questioning its complex debt and equity package and the reliance on a revocable trust backed by the Ellison family.

The board also highlights the penalties for walking away. WBD would owe Netflix a $2.8 billion termination fee if it switched to a rival deal. On top of that, the Netflix agreement includes a $5.8 billion regulatory reverse termination fee payable by Netflix if the takeover is blocked on antitrust grounds. That is a large sum even for a company of Netflix’s size, and is meant to signal confidence that regulators will ultimately sign off.

Investors should not ignore the regulatory backdrop. Combining the largest global streaming platform with one of Hollywood’s biggest studios and the HBO pay-TV powerhouse will draw intense scrutiny from Washington and Brussels. Critics, including the Writers Guild of America, already argue that the deal would concentrate too much power in one buyer of scripts, talent and rights. Netflix and WBD have started pre-notifying US and EU authorities and expect a 12 to 18-month approval process.

Strategically, the logic for Netflix is clear. The company gets a century of Warner Bros. film and TV, plus prized HBO series, on top of its own slate. That strengthens its hand against Disney, Amazon and Apple in the global content arms race. It also tilts Netflix further towards owning the underlying intellectual property rather than licensing shows. The press release talks of cost savings of $2 billion to $3 billion a year by year three and earnings accretion in year two, although investors will want to see detailed synergy assumptions in due course.

For WBD shareholders, the picture is more mixed. The share price was under pressure before sale rumours surfaced and jumped when potential bidders, including Paramount Skydance, first emerged. The Netflix bid locks in a sizeable premium to pre-rumour levels, but leaves some money on the table versus the $30 Paramount headline price. In exchange, they get a deal that the board believes is funded, actionable and less likely to blow up under antitrust review.

There is also the question of what investors want to own. The transaction separates growth assets from legacy businesses. After closing, former WBD investors will hold cash, a sliver of Netflix equity and shares in Discovery Global, a pure-play linear and sports broadcaster carrying CNN, TNT Sports and other cable assets. That could appeal to investors who prefer to value streaming and linear TV separately, but it also introduces execution risk as the spin is completed in parallel with a large cross-border takeover.

Paramount Skydance is unlikely to retreat quietly. Its latest offer came after a sequence of improved proposals through the autumn, and the company insists its cash bid is superior and more straightforward. A higher offer is possible, especially if a portion of WBD’s shareholder base pushes for more. But the longer the bidding war runs, the more attention regulators and politicians will pay to consolidation among major studios, and the greater the risk that no deal completes at all.

For now, the board has nailed its colours to Netflix’s mast. The message from its defence filings is that value is not just about the headline price. Certainty of funding, deal structure, regulatory odds and the cost of failure all matter. Investors weighing their vote in the months ahead will need to decide whether a slightly lower but more credible bid is worth more than a rich offer that may never get to the finish line.

The Recap

• Netflix welcomed WBD board's recommendation to approve the merger.
• Transaction values WBD equity at $72.0 billion total.
• Company expects closing after regulatory approvals within 12–18 months.