Paramount Sues WBD As Takeover Battle Gets Ugly

In a major escalation of the battle for Hollywood’s most iconic assets, Paramount Skydance filed a lawsuit against Warner Bros. Discovery (WBD) in Delaware Chancery Court today. This legal maneuver accompanies a hostile takeover attempt as Paramount seeks to derail WBD’s existing merger agreement with Netflix.

Paramount Sues WBD

The conflict stems from WBD’s decision to reject Paramount Skydance’s $108.4 billion all-cash bid in favor of a $82.7 billion cash-and-stock deal with Netflix. Paramount CEO David Ellison argues that the WBD board is “misleading” its shareholders by favoring an inferior offer.

“We filed suit this morning in Delaware Chancery Court to ask the court to simply direct WBD to provide this information so that WBD shareholders have what they need to be able to make an informed decision as to whether to tender their shares into our offer,” said Ellison in a letter

The Lawsuit’s Objectives

Filed in the Delaware Chancery Court, the lawsuit aims to force WBD to provide transparency regarding:

• Valuation Discrepancies: How WBD valued the “Global Networks” stub equity and the overall Netflix transaction.
• Risk Adjustments: The basis for WBD’s “risk adjustment” of Paramount’s $30-per-share all-cash offer.
• Debt Mechanics: Details on how purchase price reductions for debt function within the Netflix deal.

“WBD has failed to include any disclosure about how it valued the Global Networks stub equity, how it valued the overall Netflix transaction, how the purchase price reduction for debt works in the Netflix transaction, or even what the basis is for its ‘risk adjustment’ of our $30 per share all-cash offer,” said David Ellison said in the letter on Monday.

Paramount Launches a Proxy Battle for WBD

Beyond the courtroom, Paramount Skydance is launching a proxy battle to seize control of the WBD board. It intends to nominate a slate of its own directors to WBD’s board at the next annual meeting. These directors would be tasked with reconsidering Paramount’s offer under their fiduciary duties. Furthermore, Paramount is proposing an amendment that would require shareholder approval for any separation of WBD’s “Global Networks” (a key component of the Netflix deal).

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.

In contrast, the Paramount Skydance bid is a “hostile” all-cash tender offer valued at $108.4 billion ($30 per share). Paramount is bidding for 100% of WBD, including its debt and its struggling linear cable networks.

WBD Board Rejected Paramount’s Offer

Despite Paramount’s (PSKY) offer appearing more lucrative on paper ($30/share vs. $27.75/share), WBD’s board has categorized the Paramount bid as “inadequate” and “risky.” In its release, WBD said, “The PSKY Offer Is Not Superior, or Even Comparable, to the Netflix Merger.”

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.”

WBD Expressed Concern Over Debt

The board’s primary concern is the debt. Paramount’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.

In its release, it also pointed to the massive difference in the sizes of Paramount 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.”

WBD Would Need to Pay Termination Costs to Netflix

The Board 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.

Why Paramount Wants to Buy Warner Bros. Discovery?

A desire for rapid survival drives Paramount’s interest in acquiring Warner Bros. Discovery through scale. In a landscape dominated by tech giants like Netflix, Amazon, and Disney, Paramount CEO David Ellison views this merger as the only way to transform Paramount from a “vulnerable legacy player” into a “global media titan.”

Streaming is currently a game of scale where only the largest survive. By combining Paramount+ with Max (HBO), the new entity would control the fourth-largest streaming library in the world, with over 207 million subscribers. This would give the combined company the leverage needed to negotiate better pricing with advertisers and reduce the “churn” (subscribers canceling) that plagues smaller services.

Moreover, the deal will create the most powerful sports broadcasting platform in history, making the combined company a vital partner for every cable and satellite provider worldwide.

Why Netflix Is Interested in WBD?

By owning this content, Netflix eliminates billions in future licensing costs and the risk of titles being pulled by rivals. The sheer volume of new content reduces “hit-rate risk” and strengthens the value proposition for its subscribers globally. As Netflix Co-CEO Ted Sarandos noted, the mission to “entertain the world” is better achieved by combining their “culture-defining titles” with Warner Bros.’ century-long legacy.

The merger combines the world’s largest streaming service by subscribers with HBO Max, a premium, critically acclaimed competitor. Analysts predict the combined entity will command over 21% of US streaming viewership, creating a significant market gap between Netflix and its remaining competitors, like Disney+ and Amazon.

Netflix expects to realize at least $2-3 billion in annual cost savings by the third year. This will come from eliminating duplicated services (like merging HBO Max into the Netflix platform), integrating production infrastructure, and optimizing back-office functions. This massive saving provides a financial cushion to reinvest in original content or pass savings on to consumers through bundled offerings.