The board of directors of Warner Bros. Discovery (WBD) earlier formally sent a letter to shareholders, clearly stating its rejection of Paramount's proposal.All-cash takeover offerWarner Bros. believes that while Paramount's offer is higher on paper, Netflix's proposal has "superior and more certain value." They also strongly recommend that shareholders support the original Netflix merger proposal.
Cash is good, but Netflix stock is even better?
According to a statement by Samuel Di Piazza, chairman of the board of Warner Bros. Discovery, Paramount's all-cash offer of $30 per share was deemed "inadequate" and carries significant risks.
Warner Bros.' concerns about this exploration mainly stem from two points:
• Lack of transparency regarding funding sources: Paramount claims the deal is fully backed by Oracle founder and one of the world's richest men, Larry Ellison, but Warner Bros. Discovery's board of directors points out that the trust structure it relies on is "opaque and revocable," and its assets and liabilities are subject to change at any time.
• Difference in growth potential: In contrast, Netflix's offer of approximately $27.75 (in cash and stock) is slightly lower on paper, but Warner Bros. is optimistic about Netflix's stock price surging 600% from mid-2022 to mid-2025. Coupled with its market capitalization of over $4000 billion, Warner Bros. believes that holding Netflix stock is more secure for shareholders' long-term interests.
Key difference: Do we need the burden of "cable TV"?
The structural differences between these two offers also reflect the current state of the media industry.
• Paramount Plan:They want to acquire the entire Warner Bros. Exploration, including Warner Bros. Pictures, HBO, and cable television network assets such as CNN and TNT.
• Netflix's solution:The strategy adopted was to "weed out the dross and keep the essence," focusing only on Warner Bros.' film studios, HBO and HBO Max streaming services, excluding the shrinking cable television assets.
Regarding regulatory risks, while Paramount claims its proposal is more likely to pass scrutiny, and the Ellison family has a good relationship with US President Trump, Warner Bros. believes the regulatory risks faced by both are not significantly different. Netflix co-CEO Ted Sarandos has also been actively lobbying Trump recently and has received positive feedback, indicating that political factors are not necessarily one-sided.
Did the Ellison family know they would be rejected? This suggests it wasn't their final offer.
Interestingly, Paramount CEO David Ellison seemed to have anticipated being rejected. Foreign media reports indicate that he privately stated that if Warner Bros. Exploration executives accepted this offer, which was almost identical to previous ones, it would be a breach of fiduciary duty.
David Ellison has hinted to Warner Bros. Discovery CEO David Zaslav that the current offer is not the "best and final," meaning there may be further price increases. Warner Bros. Discovery shareholders must make a decision by January 8th of next year; if they ultimately join Paramount, Warner Bros. Discovery will have to pay Netflix a breakup fee of up to $28 billion.
Analysis: Warner Bros. is determined to shed its television baggage.
In my opinion, the WBD board's choice honestly reflects the traditional media's tendency to abandon its "cable television" assets.
While Netflix's proposal involves a complex spin-off, it would allow Warner Bros. to explore direct ownership of Netflix stock, enjoy the high price-to-earnings ratio of a pure streaming giant, and completely shed the burden of traditional television networks like CNN and TNT, whose profits have been declining year by year.
Conversely, Paramount itself has already undergone mergers and acquisitions. If it were to swallow Warner Bros. Discovery's vast television assets, the integration would be extremely difficult. For Warner Bros. Discovery, the real reason for rejecting Paramount might be that they would rather take less cash in exchange for a first-class ticket to the streaming future.
