Board Flags Unacceptable Risk in PSKY Offer, Backs Netflix Merger for Shareholder Certainty
Warner Bros. Discovery's Board of Directors has issued a unanimous recommendation for shareholders to reject the latest tender offer from Paramount Skydance (PSKY). According to the Board, the PSKY bid lacks essential deal security and imposes both financial and structural risks, especially when compared to the agreed Netflix merger.
Netflix Deal Seen as Delivering Superior Value and Reliability
The Board outlined the benefits of the Netflix agreement, highlighting guaranteed cash, additional Netflix shares, and participation in the new Discovery Global entity. Specifically, the terms provide:
| Component | Value / Terms |
|---|---|
| Cash Payment | $23.25 per WBD share |
| Netflix Shares | $4.50 (collared at $97.91–$119.67 Netflix share price at closing) |
| Discovery Global | Additional value via shares in newly spun-out company |
| Termination Fee | $5.8 billion regulatory break fee (Netflix); $5 billion (PSKY) |
This deal structure offers more predictable outcomes, supported by Netflix's robust market capitalization ($400B+) and investment grade balance sheet. Importantly, there is no need for risky external equity financing, reducing uncertainty for WBD investors.
Concerns Mount Over PSKY Offer’s Unsecured and Revocable Trust Funding
A central issue highlighted by the Board is the lack of a reliable funding commitment from the Ellison family, whom PSKY has cited as the key equity backers. Instead of a firm, unconditional commitment, the PSKY offer proposes reliance on a revocable trust. The Board points out several issues:
- No binding Ellison family equity backstop
- Revocable trust structure allows withdrawal of assets at any time
- Trust’s liability for damages in breach scenarios capped at just 7% of its commitment ($2.8B of $40.65B)
This contrasts sharply with Netflix’s binding and fully funded merger agreement, heightening Board concerns that PSKY’s funding sources remain opaque and subject to change, putting shareholders at material risk.
Potential Hidden Costs for Shareholders If PSKY Offer Proceeds
Accepting PSKY's proposal could saddle WBD shareholders with approximately $4.3 billion in additional costs, broken down as follows:
| Source of Additional Cost | Estimated Amount |
|---|---|
| Netflix Deal Termination Fee | $2.8 billion |
| Loss of Debt Exchange Financing | $1.5 billion |
| Total Added Costs | $4.3 billion (~$1.66 per share) |
These figures exclude additional execution risks associated with PSKY’s high-leverage capital structure—6.8x 2026E debt to EBITDA—and ambitious, potentially unattainable $9B synergy targets.
Regulatory and Process Review Finds No Edge for PSKY Bid
The Board asserts that there is no meaningful difference in regulatory risk between the two offers. Both transactions are expected to require extensive global review, and Netflix has agreed to a record $5.8 billion termination fee—outweighing PSKY's $5 billion.
The process leading to these decisions included direct engagement with PSKY through six rounds of proposals and competitive review involving multiple bidders, emphasizing fairness and transparency.
Takeaway: Board Calls PSKY Offer Inferior, Highlights Certainty and Value of Netflix Merger
The Board's bottom line is clear: the Netflix merger represents a secure, value-rich option for WBD shareholders. The PSKY offer, while headline-grabbing, lacks enforceable commitments, exposes investors to avoidable risk, and does not offer better terms than the current Netflix agreement. Shareholders are encouraged to review the SEC filings for full details before making a decision.
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