Paramount Skydance Sweetens Offer For Warner Bros. Discovery

Paramount Skydance amended its all-cash $30-per-share tender offer for Warner Bros. Discovery, adding a $0.25-per-share quarterly ticking fee for delays past Dec. 31, 2026, and agreeing to fund a $2.8 billion Netflix termination fee and backstop a potential $1.5 billion exchange-related fee. The bid is presented as fully financed with $43.6 billion in equity commitments, $54 billion in debt commitments and a $43.3 billion personal guarantee from Larry Ellison; Paramount says it has complied with the DOJ Second Request and obtained German foreign investment clearance, positioning its proposal as more certain and higher-value than Netflix’s disclosed $21.23–$27.75 sliding-scale option.

Analysis

Contrarian angles: Consensus assumes financing is safe because of headline $43.6B equity/$54B debt and a personal guarantee, but covenant cliffs or a 150–250bp market rate move could force renegotiation—this risk is underpriced. Historical parallels: TimeWarner/AT&T and Comcast deals show antitrust and integration risk can turn announced premiums into prolonged value destruction; if the deal fails exec/legal costs + termination fee dynamics could leave WBD shares trading 20–40% below pre-offer levels. Unintended consequence: a successful take-private could compress public comps’ multiples (fewer public comparables), reducing M&A visibility and raising bid-ask friction for future roll-ups.

Key Decisions for Investors

• Establish a 2–3% long position in WBD if market price ≤ $28.50, target exit at $30 (deal price) or within 6–12 months; set a stop-loss at $26 to limit blow-up risk if DOJ/financing fails.
• Buy 1–2% notional 3–5 year WBD CDS or long protection on senior WBD bonds if spreads tighten below 250bp, targeting a 200–400bp widening scenario within 6–12 months; exit on spread compression <150bp or regulatory clearance.
• If you believe the deal closes, sell covered calls on WBD at the $30 strike (12-month) to collect premium; if you fear regulatory failure, buy 12–18 month WBD puts strike $25 sized to 1% portfolio as insurance.
• Small speculative 1–2% long in PSKY equity or PSKY 12-month calls (if liquid) to play bid success given Ellison guarantee; cap exposure due diligence on public filings and financing covenants before increasing size.
• Reduce 1–3% exposure to pure-play, low-content streaming incumbents (e.g., NFLX overweight exposure) and allocate to M&A beneficiaries (banks/legal/financing) for the next 3–9 months; re-evaluate on regulatory or competing-bid developments within 30–90 days.