Warner Bros. Discovery Rejects Paramount's $108 Billion Bid. Here's One Reason Why.

Paramount Skydance's (NASDAQ: PSKY) last-ditch bid to win the bidding war for Warner Bros. Discovery (NASDAQ: WBD) took a step backward on Wednesday after WBD recommended that its shareholders reject Paramount's tender offer, or the hostile takeover it made last week. Instead, the WBD board said the company should move ahead with the agreed sale to Netflix (NASDAQ: NFLX).

WBD gave several reasons for that decision, but the crux of the argument appeared to be that the Paramount offer was not as sound as Netflix's. In a press release announcing the decision, WBD said that the Ellison family, which would fund the $108 billion offer, had not provided an equity backstop, meaning a commitment of other funding if the financing falls through. It also called Paramount's offer non-binding, meaning Paramount could back out at any time.

WBD pushed back on Paramount's argument that its offer represented less regulatory risk than the Netflix bid, saying it sees "no material difference in regulatory risk" between the two offers.

WBD Board Chair, Samuel A. Di Piazza Jr. said, "This offer once again fails to address key concerns that we have consistently communicated to Paramount throughout our extensive engagement and review of their six previous proposals."

Image source: Getty Images.

Paramount pushes back

Paramount responded to the board's recommendation by again calling on shareholders to tender their shares, or sell them to Paramount, which had offered $30/share for all of Warner Bros. Discovery. It also said it was confident that its "fully financed" offer was superior and had a more certain path to completion.

Notably, WBD stock is still trading below that threshold, ranging between $28 and $29, giving shareholders a good reason to sell their stock to Paramount for $30 a share. WBD stock was trading down nearly 2% for the day as of Wednesday afternoon, showing that investors may have been unhappy with the recommendation. Netflix stock, meanwhile, traded up on the news.

Netflix had offered $27.75 per share for most of WBD, but would not purchase its cable networks or the Discovery+ streaming service.

What happens next

The WBD-Netflix merger isn't necessarily a done deal. WBD shareholders still have until Jan. 8 to tender, or sell, their shares to Paramount. If Paramount is able to gain a majority of shares in WBD, it would be able to block the deal, change the board, and fully take over the company.

It's unclear what WBD shareholders think of the tender offer, but the clock is now ticking. Even if the tender offer fails, that's no guarantee that the WBD-Netflix merger will gain regulatory approval, as Netflix is already dominant in the streaming industry.

Whatever happens with the tender offer, this story is far from over.

Jeremy Bowman has positions in Netflix. The Motley Fool has positions in and recommends Netflix and Warner Bros. Discovery. The Motley Fool has a disclosure policy.