Quick overview

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Warner Bros. plans to reject Paramount Skydance Corp.’s hostile takeover offer on concerns about funding and other conditions.

After reviewing Paramount’s proposal, Warner Bros., whose representatives wished to remain anonymous due to the sensitivity of the matter, stated that the board will recommend that shareholders reject the tender offer.

The board believes that the company’s existing contract with Netflix, the industry leader in streaming, provides better terms, value, and certainty than what Paramount has proposed.

According to these sources, a response to Paramount’s tender offer could be submitted as early as Wednesday. They added that no final decision has been made and the situation remains uncertain. Warner Bros. and Paramount declined to comment. A key concern for Warner Bros. is the funding being proposed by Paramount, led by David Ellison. The equity is supported by a trust managing the fortune of his father, software magnate Larry Ellison.

Warner Bros. can withdraw assets from it at any time because it is a revocable trust. The sources indicated that such a move might leave Warner Bros. with limited options.

On Tuesday, one of Paramount’s backers withdrew from the agreement, citing the involvement of “two strong competitors.” Earlier that day, President Trump criticized Paramount on social media, claiming that since the Ellison family took over earlier this year, the company’s CBS division has treated him “far worse.”

The Ellisons have emphasized their friendly relationship with the President. Another concern for Warner Bros. is the company’s ability to operate for a year or longer while seeking regulatory approval for a sale. According to sources, Paramount is not providing enough flexibility to help Warner Bros. manage its balance sheet or operate effectively.

Warner Bros. addressed these issues in a filing last week, raising concerns about the company’s capacity to refinance debt and pay a $5 billion breakup fee, which the Ellison family supports. In response, Paramount has revised the terms of its bid.