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Trump-Approved Paramount Accuses Warner Bros of Favoring Netflix Bid

Lawyers for Paramount Skydance sent a letter to Warner Bros. Discovery (WBD) CEO David Zaslav, claiming Netflix is being unfairly favored.

As Warner Bros. Discovery (WBD) considers a second round of bids from Paramount Skydance, Netflix, and Comcast-NBCUniversal, it appears that Paramount's David Ellison doesn't feel his company is getting a fair deal in the WBD sales process. Earlier today, the news hit that lawyers for Paramount Skydance sent a letter to WBD CEO David Zaslav, expressing their "grave concerns" that WBD has "embarked on a myopic process with a predetermined outcome that favors a single bidder," Netflix. The letter claims that Paramount Skydance "agreed to certain standstill arrangements in exchange for the opportunity to participate in a truly competitive and unbiased bidding process. Paramount did not bargain for WBD to foster, whether intentionally or unintentionally, a tilted and unfair process."

A couple of things to keep in mind that you should know about. Reports are that WBD turned down three of Ellison's prior offers, and that was before a second round of bids was requested. Also, while Paramount Skydance is looking to purchase WBD in its entirety, Netflix and Comcast/NBCUniversal are looking at only the streaming and film/TV studios. WBD entered the bidding process by making it clear that they are under no obligation to accept any bid and could continue moving forward with their plan to split the company into two distinct and separate entities by April 2026.

Paramount Skydance's claim that WBD is favoring Netflix comes amid concerns that Trump and his administration are beginning to put their thumb on the scale in favor of Ellison's Paramount Skydance having the winning WBD bid. Trump has praised Ellison and his company on social media and during press engagements, with Ellison's hiring of The Free Press' Bari Weiss to head CBS News seen by some as an "olive branch" to Trump, signaling that CBS News will take a softer approach to criticizing Trump moving forward. In addition, rumblings have gotten louder this week that Trump's folks would be looking to tie up Netflix in legal red tape if the steamer were to receive the winning bid. Interestingly, there have been no rumblings about Trump's DOJ investigating the ramifications of Paramount Skydance looking to gobble up two major media companies in less than three years.

For its part, WBD confirmed to CNBC on Thursday morning that the letter was received and would be shared with board members, adding in response to the letter, "Please be assured that the WBD Board attends to its fiduciary obligations with the utmost care, and that they have fully and robustly complied with them and will continue to do so." Here's a look at the letter that was sent from Paramount Skydance Corporation's lawyers to Zaslav, first published by CNBC:

Dear Mr. Zaslav: We write on behalf of Paramount Skydance Corporation ("Paramount", "we" or "us") to express our serious concerns about the fairness and adequacy of the bidding process for a potential combination with Warner Bros. Discovery ("WBD" or "you"). It has become increasingly clear, through media reporting and otherwise, that WBD appears to have abandoned the semblance and reality of a fair transaction process, thereby abdicating its duties to stockholders, and embarked on a myopic process with a predetermined outcome that favors a single bidder. We specifically request and expect this letter will be shared and discussed with the full board of directors of WBD.

We have recently seen reporting in the U.S. and foreign media that gives serious cause for concern. The German newspaper Handelsblatt recently reported on a meeting that reportedly took place in Brussels between Gerhard Zieler, President of WBD's International Business and a direct report to WBD's Chief Executive Officer, who "arrived with a three-person team," with the E.U. Commission Vice President Hena Virkkunen, to discuss the potential merger prospects for WBD. In that conversation, the article reports that "concerns were raised that the Ellison family's planned acquisition of Warner Bros. Discovery could lead to excessive media concentration," and that the E.U. Commission would consider intervening in a potential merger with Paramount for this reason. The article quotes "sources close" to Zeiler as saying "that the talks with the Commission were important because both Warner and the EU wanted to preserve media diversity." The implications of such a meeting, if it occurred, are clear and evince a tacit resistance to, if not active sabotage of, a Paramount offer.

While this report is concerning in itself, this is not an isolated report regarding purported WBD resistance to a combination with Paramount. Several U.S. media outlets have reported on the enthusiasm by WBD management for a transaction with Netflix, and on statements by management that a transaction between WBD and Netflix would be a "slam dunk," while also referring to Paramount's bid in a negative light. Additional reporting since the submission of revised bids on December 1 has indicated that WBD's "board has really warmed to" a transaction with Netflix due to the "chemistry between" WBD management and Netflix management. We have come to you first to inquire whether this reporting is accurate, and to engage in a productive discussion with you around any actual or perceived issues that it may reflect.

Moreover, these media reports echo similar indications that we have been hearing throughout this process, despite what we viewed as otherwise productive conversations that we have had with WBD leadership. Paramount has a credible basis to believe that the sales process has been tainted by management conflicts, including certain members of management's potential personal interests in post-transaction roles and compensation as a result of the economic incentives embedded in recent amendments to employment arrangements. These concerns are amplified by indications of director bias and beholdenness to others whose interests may not align with the stockholders', and the fact that alternatives involving only certain WBD assets are being prioritized notwithstanding their heightened regulatory risk and potential to deprive stockholders of consideration for the entirety of WBD's enterprise value.

Further, as you know, Paramount agreed to certain standstill arrangements in exchange for the opportunity to participate in a truly competitive and unbiased bidding process. Paramount did not bargain for WBD to foster, whether intentionally or unintentionally, a tilted and unfair process. We believe that all parties to this process should have a shared desire for, and will mutually benefit from, an unimpeachable transaction process. As we assume you agree, even discounting the accuracy of any media reports, just the appearance of a flawed process imperils any potential transaction that might result and may undermine the potential value maximization to WBD stockholders from any prospective transaction.

In light of our grave concerns regarding the integrity of WBD's process, we seek confirmation as to whether WBD has appointed an independent special committee of disinterested members of its board to consider the potential transaction opportunities and to make a final determination regarding a sale or break-up of all or part of the company. If not, we strongly urge you to empower such a special committee comprised of directors with no potential appearance of bias or beholdenness to others whose interests may differ from those of the stockholders. This would seem to be an important step at this stage, to ensure the fairness and unimpeachability of the transaction process and to maximize the value of whatever outcome WBD determines to pursue. Engaging with WBD throughout this process, we have been encouraged by the enormous potential from a combination of our entities. We remain confident that the Paramount offer would provide the maximum value to WBD stockholders and look forward to the opportunity to continue to engage with you productively in this process. But at this point we must insist on assurances and steps taken to ensure that a truly fair and independent process is being conducted, both for Paramount's benefit and in the interest of WBD's stockholders.

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