Strategic Logic Behind Warner Bros. Discovery's Choice to Merge with Netflix Over Paramount's Acquisition

Based on the detailed information I have collected, I will provide you with a systematic and comprehensive strategic analysis report.

---

Warner Bros. Discovery (WBD) faced two major transaction options as follows[1][2]:

Transaction Elements	Netflix Merger Agreement	Paramount-Skydance Takeover Offer
Announcement Date	December 5, 2025	December 8, 2025 (Hostile Takeover)
Enterprise Value	$82.7 Billion	$108.4 Billion
Equity Value	$72 Billion	Not Specified (includes debt)
Per-Share Offer Price	$27.75 ($23.25 in cash + $4.50 in Netflix stock)	$30 (all cash)
Financing Structure	$59 billion syndicated loan (Wells Fargo, HSBC, BNP Paribas)	$41 billion equity support + $54 billion in debt
Acquisition Scope	Studios and streaming assets only (HBO Max)	All WBD assets (including traditional cable networks)
Breakup Fee	If WBD defaults: $2.8 billion	If the transaction fails: $5.8 billion (WBD net gain of $1.1 billion)
Financier Credit Rating	A/A3 (Investment Grade)	Junk Grade

On January 7, 2026, the WBD Board of Directors unanimously determined that the Paramount-Skydance takeover offer “is not in the best interests of the company and its shareholders” and “does not meet the standard of a ‘superior proposal’ under the Netflix merger agreement”[1][3].

---

[1][3]:

• Unprecedented Scale of Leveraged Buyout
  : With a market capitalization of only $14 billion, Paramount-Skydance is launching an acquisition worth nearly 7x its market value ($94.65 billion), including over $50 billion in incremental debt, which would be the largest leveraged buyout (LBO) in history
• Extremely High Debt Leverage Risk
  : After the transaction is completed, the merged entity is expected to have $87 billion in liabilities, with an expected EBITDA leverage ratio of up to 7x in 2026 (excluding synergies)
• Dubious Financing Commitments
  : Although Oracle co-founder Larry Ellison provided an irrevocable personal guarantee of $40.4 billion, the WBD Board of Directors believes this still fails to address key financing flaws[2][3]
• Worrying Credit Quality
  : Paramount-Skydance has a junk credit rating, negative free cash flow, and relies on the long-declining linear TV business

In contrast, Netflix’s proposal demonstrates vastly different financial stability[1][2]:

• Netflix has a market capitalization of $400 billion and an investment-grade (A/A3) credit rating
• Expected free cash flow of over $12 billion in 2026
• The financing structure is simple and transparent, with no execution uncertainty

Although Paramount’s nominal offer price ($30 per share) is higher than Netflix’s ($27.75 per share), the WBD Board of Directors conducted a thorough value analysis[1][3]:

:

Cost Item	Amount (USD)
Termination breakup fee paid to Netflix	$2.8 billion
Debt swap failure costs	$1.5 billion
Incremental interest expense	$350 million
Total	$4.65 billion (approximately $1.79 per share)

If the transaction fails, after deducting the above costs from the $5.8 billion regulatory termination fee that Paramount is required to pay, shareholders will only receive a net amount of $1.1 billion, which is equivalent to only 1.4% of the transaction’s equity value, far from sufficient to offset potential business damages[1].

:

• $23.25 in cash per share
• $4.50 in Netflix stock per share (based on a stock price range of $97.91-$119.67)
• Equity in Discovery Global (an independent entity with scale, global footprint, leading sports/news assets, and strategic flexibility)

[4][5]:

• Content Synergy
  : Combining Netflix’s 300+ million global subscribers with WBD’s iconic IP library (Harry Potter, DC Universe, Game of Thrones, Friends) and HBO prestige content
• Scale Effect
  : WBD’s global box office revenue in 2025 was approximately $4 billion (20% market share), and Netflix can deepen its investment in theatrical blockbusters
• Geographic Expansion
  : Accelerate Netflix’s international expansion in Latin America and Asia through HBO Max’s presence in 100+ countries

[3][4]:

• The acquisition scope includes WBD’s traditional cable networks (CNN, Discovery, etc.), which are in structural decline
• Paramount itself also faces the challenge of a shrinking cable TV business, and the merger of the two cannot form complementary advantages
• There is higher regulatory approval uncertainty, as a full merger will significantly reduce the number of market competitors

[1]:

• Prohibits the implementation of the Discovery Global/Warner Bros. separation plan before the transaction is completed (which could take up to 18 months)
• Prohibits any debt swaps or refinancing (unless approved by Paramount)
• These restrictions will severely constrain WBD’s strategic and financial flexibility
• If the transaction ultimately fails, shareholders will be left with a business entity that has been deprived of key growth opportunities

[1]:

• No restrictive covenants
• Can continue to implement established strategic initiatives
• Even if the merger fails due to regulatory reasons, WBD can still receive a $5.8 billion breakup fee, and shareholders can still benefit from ongoing strategic initiatives

---

A fundamental paradigm shift has occurred in the streaming market in 2025. A PwC report states: “After years of expansion, the streaming market is decisively shifting toward scale and sustainability. The era of independent platforms is over, and scale has become the primary determinant of competitiveness.”[4][5]

:

Traditional Valuation Dimensions	Emerging Valuation Dimensions
User growth rate	EBITDA margin (mature SaaS companies can reach 25-40%)
Content investment scale	Free cash flow generation capacity
Market share	Achievability of synergies
Strategic value	Regulatory approval certainty

The pricing of Netflix’s acquisition of WBD has established a new valuation benchmark for the media industry[4][5]:

• Pre-synergy Valuation Multiple
  : Approximately 25x 2026 expected EBITDA (excluding synergies)
• Post-synergy Valuation Multiple
  : Approximately 14.3x
• Comparison with Traditional Media Transactions
  : Disney’s 2019 acquisition of 21st Century Fox ($71.3 billion) had a multiple of approximately 13-15x

This high price reflects the competitive valuation of scarce content assets, and also indicates that

– because antitrust restrictions will prevent the “Big Three” from further expanding, making valuable subscriber bases and content libraries even more scarce[4].

The decision-making logic of the WBD Board of Directors highlights the central position of

in media industry valuation[1][3]:

1. Financing Risk Premium
   : The high-leverage structure of Paramount’s proposal requires a significant default risk discount
2. Execution Certainty Premium
   : Netflix’s investment-grade credit and transparent financing structure bring an execution certainty premium
3. Regulatory Risk Pricing
   : Both transactions face significant antitrust review risks, but Netflix’s proposal has a clearer structure
4. Opportunity Cost Considerations
   : The implicit costs of business restrictions during the transaction period are incorporated into the decision-making framework

The

in WBD’s proposal reflects a new trend in the media industry[1][2]:

• Separates traditional cable networks (structurally declining assets) from high-growth streaming/studio assets
• Creates the possibility of two separate valuations for shareholders
• Avoids dragging down the valuation multiple of high-growth businesses with low-growth businesses

This structure indicates that

.

---

If the Netflix-WBD transaction is completed, it will officially establish the “Big Three” landscape in the streaming industry[4][5]:

Platform	Pre-Transaction Subscribers	Post-Transaction (including WBD’s 128 million)
Netflix	300+ million	Approximately 430 million
Amazon Prime Video	Approximately 220 million	Remains second
Disney+ (including Hulu)	Approximately 196 million	Remains third

:

• The Big Three platforms will control more than 60% of the global streaming market share
• Netflix alone will control approximately 26-27% of U.S. streaming subscribers, twice that of Disney
• Smaller service providers (79 million for Paramount+, 45 million for Apple TV+) will face greater integration pressure

The market is shifting from the “era of independent platforms” to the

[4][5]:

• Consumers cannot or are unwilling to subscribe to more than 7 services, forcing companies to achieve scale effects through integration
• Short-term strategies such as “temporary promotional prices” cannot solve long-term survival problems
• Choices for small service providers: license content to the Big Three, cease operations, or merge with other small services

PwC predicts: The value of media/telecommunications transactions in the second half of 2025 will increase by 61% compared to the same period in 2024, and the integration trend will further accelerate[5].

Paramount’s hostile takeover offer for WBD marks the

[2][5]:

• After Netflix announced the merger agreement, Paramount directly launched the acquisition to shareholders, bypassing management negotiations
• This reflects the necessity of a “preemptive” M&A strategy in a highly competitive environment
• However, the firm rejection by the WBD Board of Directors indicates that
  hostile takeovers face higher execution thresholds in the media industry
  (especially when an announced competitive merger agreement exists)

Both transactions face unprecedented regulatory challenges[2][4]:

:

• Senator Elizabeth Warren called the Netflix transaction an “antitrust nightmare”
• Senators Pramila Jayapal, Amy Klobuchar, and Mike Lee also expressed concerns
• Former President Trump also hinted at possible approval issues

:

• The Writers Guild of America (WGA), Directors Guild of America (DGA), and Screen Actors Guild-American Federation of Television and Radio Artists (SAG-AFTRA) warned of job losses and loss of creative control
• The National Association of Theatre Owners opposes arrangements that may shorten theatrical release windows

: To avoid review by the Committee on Foreign Investment in the United States (CFIUS), financiers with sovereign wealth fund backgrounds such as Tencent gave up governance rights and board seats[2].

The WBD-Netflix transaction demonstrates the application of

in addressing complex regulatory environments[1][2][4]:

• Spin-Off First
  : WBD will spin off its cable networks into an independent entity “Discovery Global” before the merger is completed (expected in mid-2026)
• Cash + Stock Mix
  : Provides shareholders with a combination of immediate liquidity (cash) and participation in future upside (stock)
• Stock Price Range Lock
  : Reduces price risk for both parties through a stock price lock mechanism
• Huge Breakup Fee
  : The $5.8 billion breakup fee (accounting for approximately 7-8% of the total transaction value) reflects the huge risk exposure of both parties to transaction failure

PwC recommends that media companies explore alternative structures such as minority equity investments, joint ventures, and content sharing alliances to acquire assets without overextending their balance sheets[5].

Beyond streaming integration, the

[5]:

• The NFL invested $2 billion in ESPN (acquiring a 10% stake)
• The majority stake of the Lakers was sold for $10 billion
• EA was acquired for $55 billion

These trends indicate that

, complementing streaming integration.

---

The core strategic logic behind Warner Bros. Discovery’s choice to merge with Netflix instead of accepting Paramount’s acquisition can be summarized as follows:

1. Certainty Trumps Nominal Value
   : The “lower” offer of $27.75, paired with clear financing and execution paths, is superior to the high-risk $30 offer
2. Strategic Synergy Takes Priority Over Scale Expansion
   : Focus on the complementarity of content assets, rather than the mere aggregation of traditional businesses
3. Risk Management and Shareholder Protection
   : Provides downside protection for shareholders through huge breakup fees and business protection clauses
4. Future-Oriented Asset Allocation
   : Separates traditional cable networks to focus on high-growth streaming/content businesses

Based on this transaction and the industry reactions it has triggered, the media industry will exhibit the following trends in the future:

• Increased Pressure for Further Integration
  : Small streaming service providers will face the choice of “being acquired or marginalized”
• Continuous Evolution of Valuation Methods
  : Shifting from user growth metrics to profitability, cash flow, and risk-adjusted value
• Stricter Regulatory Environment
  : Large-scale media mergers and acquisitions will face stricter antitrust reviews
• Prominent Value of Content IPs
  : Exclusive content assets have become core bargaining chips in strategic competition
• Normalization of Business Spin-Offs
  : Separation of traditional businesses and digital businesses will become standard practice

For media industry investors, this transaction provides the following important references:

1. Focus on Transaction Execution Certainty
   : The failure risk of highly leveraged acquisitions may completely offset nominal valuation advantages
2. Emphasize Quantification of Synergies
   : Focusing only on transaction multiples may overlook the actual value creation brought by synergies
3. Assess Regulatory Risk Exposure
   : Uncertainty in antitrust approval should be incorporated into valuation models
4. Identify Structural Trends
   : The declining trend of traditional cable TV business will continue to affect the valuation of related assets

---

[1] Warner Bros. Discovery Board of Directors Unanimously Recommends Shareholders Reject Amended Paramount Tender Offer (January 7, 2026). https://ir.wbd.com/news-and-events/financial-news/financial-news-details/2026/WARNER-BROS--DISCOVERY-BOARD-OF-DIRECTORS-UNANIMOUSLY-RECOMMENDS-SHAREHOLDERS-REJECT-AMENDED-PARAMOUNT-TENDER-OFFER/default.aspx

[2] Proposed acquisition of Warner Bros. Discovery - Wikipedia. https://en.wikipedia.org/wiki/Proposed_acquisition_of_Warner_Bros._Discovery

[3] Why is David Zaslav Blocking Paramount and Backing Netflix? - INDmoney. https://www.indmoney.com/blog/us-stocks/why-david-zaslav-backing-netflix-over-paramount-in-wbd-takeover

[4] Netflix-Warner deal would drive streaming market further toward Big 3 - Fortune. https://fortune.com/2025/12/08/netflix-warner-big-3-amazon-disney-streaming-business-history-market-consolidation/

[5] Big media and sports deals soared in 2025 - Los Angeles Times. https://www.latimes.com/entertainment-arts/business/story/2025-12-16/big-media-sports-deals-in-2025-what-to-know

[6] Netflix’s High-Stakes Play for Warner Bros.: Synergies, Politics - Long Yield. https://longyield.substack.com/p/netflixs-high-stakes-play-for-warner

[7] WBD rejects Paramount offer again in favor of Netflix deal - CNBC. https://www.cnbc.com/2026/01/07/wbd-rejects-paramount-offer-again-netflix-deal.html