Warner Bros. Discovery board rejects Paramount's hostile bid

• It's unclear whether Paramount, which on Tuesday lost Jared Kushner's Affinity Partners as one of the equity investors in its bid, is willing to up its price.

Zoom in: At the heart of their concern, the WBD board says Paramount has misled shareholders about the reliability of its backstop from CEO David Ellison's family — the funding the Ellisons have promised to put forward if funding partners back out.

• Earlier versions of Paramount's bid didn't include the Ellison family backstopping all $40.7 billion in equity commitments, including via their Oracle stock, which was a concern to WBD's board, Axios reported last week.

What they're saying: "PSKY has consistently misled WBD shareholders that its proposed transaction has a 'full backstop' from the Ellison family. It does not, and never has," WBD's board said in a letter to shareholders.

• It goes on to say that instead of backstopping the deal themselves, the Ellisons are relying on "an unknown and opaque revocable trust for the certainty of this crucial deal funding."
• A revocable trust, the board says, "is no replacement for a secured commitment by a controlling stockholder." The documents provided by Paramount for the trust "contain gaps, loopholes and limitations that put you, our shareholders, and our company at risk."

Between the lines: The letter adds that the board does not believe there's a difference in regulatory risk between the Paramount offer and the Netflix bid the company already accepted.

• Ellison and his family are close to President Trump and the administration; Trump has raised issues with the Netflix offer not including WBD's cable networks.

For the record: Paramount didn't immediately respond to a request for comment.

The other side: In a statement, Netflix executives welcomed the news, and reinforced their commitment to releasing Warner Bros. films in theaters with a traditional window, which is something Hollywood creatives have expressed concern about.

By the numbers: Paramount's first unsolicited bid earlier this year began at just $19 per share — versus the $30 from its latest offer — and included both cash and stock.

• Its latest all-cash bid, which included all of Warner Bros. Discovery's assets, valued the entire firm at around $108 billion.
• All of Paramount's six unsolicited and solicited bids represented a significant premium on WBD's stock, compared to where it was trading before it was reported in September that Paramount would be making a play for WBD.

• Netflix's bid, which came only after WBD opened itself up to a formal sale process in October, includes cash and stock worth $27.75 per WBD share, with a total enterprise value of $82.7 billion for just Warner Bros. Discovery's streaming and studio assets.

Of note: Kushner's Affinity Partners never had a substantial stake in the bid, sources told Axios, but his affiliation prompted some to assume it could help Paramount dodge regulatory scrutiny.

• The bulk (60%) of the $40 billion in equity funding for Paramount's latest offer came from sovereign wealth funds, including the Kingdom of Saudi Arabia's Public Investment Fund, Abu Dhabi's L'imad Holding Company, the Qatar Investment Authority.

What's next: Paramount's tender offer will continue to be open to WBD shareholders until January 8.

• If it can convince a majority (51%) of WBD shareholders to tender their shares, then Paramount would effectively take control of WBD, but that would be a big uphill battle.
• WBD's board has urged its investors not to tender their shares, and says it continues to support its deal with Netflix.

The bottom line: Shareholders need to decide whether it's best to follow the board's lead and support a Netflix offer, take Paramount's $30-per-share offer now, or wait for a bidding war to possibly yield higher offers from both parties.

Editor's note: This story has been updated with details from the letter.