Warner Bros. Discovery board again rejects Paramount's hostile bid

• It also came with a guarantee from Oracle chair Larry Ellison, the father of Paramount chair and CEO David Ellison, to provide an "irrevocable personal guarantee of $40.4 billion of the equity financing."

State of play: WBD's board didn't mention Ellison's backstop guarantee in its letter to shareholders, but cited an "extraordinary amount of debt financing" — and the uncertainty around it — as well as other offer terms that made it concerned about Paramount's ability to close the deal.

• It noted that Paramount would incur an "extraordinary amount of incremental debt" through what would effectively be the largest leveraged buyout in history.
• The WBD board said that structure "introduces risks" because it makes Paramount too reliant on the willingness of its lenders to provide funds at close, and they could back out due to changes in the industry or markets.
• "This aggressive transaction structure poses materially more risk for WBD and its shareholders when compared to the [conventional structure of the] Netflix merger," the board noted.

By the numbers: WBD's board argued that Netflix's bid of cash and stock was more valuable, despite the fact that it values WBD's studio and streaming assets at $27.75 per share compared with Paramount's all-cash offer for the whole company at $30 per share, for two reasons:

1. WBD shareholders, it argued, could see "substantial upside" from receiving shares of Netflix common stock representing a target value of $4.50 "based on a collar range in the Netflix stock price at the time of closing."
2. The board believes WBD's cable networks are worth more than what Paramount estimates. (Paramount has said they're valued at around $2.5 billion.)

Between the lines: The board also argued that in weighing Paramount's latest offer, it considered the "costs and loss of value for WBD shareholders associated with accepting" that bid.

• The WBD board said if it were to abandon its merger agreement with Netflix, it would be obligated to pay Netflix a $2.8 billion termination fee and would incur a $1.5 billion fee for failing to complete its debt exchange, which it could not execute under the Paramount offer. It would also incur an incremental interest expense of about $350 million, the board said.
• WBD estimates the total cost of abandoning its Netflix deal would be roughly $4.7 billion, or $1.79 per share. Those costs, the board argued, would effectively lower the net amount of the regulatory termination fee that Paramount agreed to pay WBD from $5.8 billion to $1.1 billion in the event of a failed transaction.
• A Netflix deal, the board argues, imposes none of these costs on WBD.

What they're saying: In a statement, Netflix co-CEOs Ted Sarandos and Greg Peters said, "The WBD Board remains fully supportive of and continues to recommend Netflix's merger agreement, recognizing it as the superior proposal that will deliver the greatest value to its stockholders, as well as consumers, creators and the broader entertainment industry."

• Netflix also noted it has submitted its Hart-Scott-Rodino regulatory filing for deal approval "and is engaging with competition authorities, including the U.S. Department of Justice and European Commission."

Catch up quick: Paramount kicked off the bidding war for WBD in September, waging three unsolicited bids for the company — all of which were rejected.

• WBD opened itself to a formal sales process in October, and received three more rounds of solicited bids from Paramount, as well as bids from other companies, including Netflix and Comcast.
• It ultimately selected Netflix's bid, prompting Paramount to launch a hostile takeover offer directly to WBD shareholders.

Between the lines: Paramount hasn't raised the price of its bid since early December, arguing its proposal is financially superior to Netflix's.

• Paramount has argued that its bid would face less regulatory scrutiny than Netflix's.
• But the Ellisons reportedly have assured President Trump that Paramount's news assets — like CBS News and CNN if it bought WBD — would be pushed more conservative. That could also prompt regulatory concerns.

What to watch: A report late last year from the New York Post suggested Paramount was mulling possibly walking away from its bid altogether, and instead pursuing litigation against WBD over how its board handled the bidding process.

• In a regulatory filing Wednesday. WDB said it "continues to be of the view that PSKY is a litigious counterparty, which raises concerns regarding the likelihood that the Offer (or any related merger agreement) will be completed on the terms proposed."

Editor's note: This story was updated to include a statement from Netflix.