Background: Competing Bids for a Hollywood Giant
In early December 2025, Warner Bros. Discovery (WBD) found itself at the center of a high-stakes bidding war. The media conglomerate’s board had agreed to a friendly deal with Netflix – a proposed $72 billion transaction (mix of cash and stock) for WBD’s film/TV studios, HBO, and streaming business[1][2]. Just days later, Paramount Skydance launched a hostile all-cash tender offer directly to WBD shareholders, worth $108.4 billion ($30 per share) for the entire company[3][4]. This hostile bid offered about $18 billion more in cash than Netflix’s offer and included WBD’s cable networks that Netflix’s deal excluded[4][5]. The WBD board announced it would review Paramount’s unsolicited offer but maintained its recommendation in favor of the Netflix deal, advising shareholders to “take no action” on Paramount’s proposal[6].
These dueling bids set up a classic friendly vs. hostile takeover scenario. Netflix’s offer was negotiated with WBD management (a friendly deal), whereas Paramount’s move to bypass management and appeal straight to shareholders made it a hostile takeover attempt[7][8]. Such friendly deals typically involve the target board’s support, a signed merger agreement, and a cooperative approach. In contrast, a hostile bid means the bidder is proceeding without board consent, often through a direct tender offer or proxy fight, and can lead to a “bruising battle” as seen here[7][9]. The stage is now set for a showdown in which WBD’s board and shareholders must navigate complex legal duties and strategic choices.
Friendly vs. Hostile Takeovers: Key Differences
In a friendly takeover, the target company’s board supports the acquisition. The deal is negotiated and agreed upon by both sides, typically culminating in a signed merger agreement subject to shareholder and regulatory approval. Friendly deals allow for orderly planning of integration and usually come with agreed terms like breakup fees and closing conditions.
By contrast, a hostile takeover occurs when a bidder pursues an acquisition against the wishes of the target’s board. Common features of a hostile bid include:
-
Tender Offers to Shareholders: The bidder makes a public offer to buy shares directly from shareholders at a premium price, as Paramount did with its $30-per-share tender offer[3]. This circumvents management by appealing to shareholders’ economic interests.
-
No Board Agreement: The target’s board has not agreed to the sale; it may actively resist. Here, WBD’s board initially rejected engaging with Paramount’s earlier offers, prompting Paramount to go hostile[8].
-
Pressure and Uncertainty: Hostile bids create pressure on the incumbent board. Shareholders aware of a higher offer might question the board’s decision to stick with a lower bid. The process can be acrimonious and public, often involving press releases and appeals to investors (Paramount openly argued its bid was superior and more “pro-competition,” trying to win support[4][10]).
Friendly takeovers generally proceed more smoothly, while hostile ones tend to be protracted and combative, possibly affecting employee morale and public perception. In WBD’s case, the friendly Netflix deal provided a pre-arranged path (splitting off WBD’s cable channels for separate handling) and was presumably coordinated with WBD leadership[11]. The hostile Paramount bid, however, has introduced uncertainty and could lead to a lengthy fight before any resolution[12].
Board Fiduciary Duties and the Revlon Rule
WBD’s board now faces a delicate legal dilemma. Under U.S. corporate law (particularly Delaware law, which governs many large companies), once a company actively enters a sales process, the directors are subject to heightened duties to maximize shareholder value. This principle, stemming from the landmark Revlon case, dictates that when a company is “for sale,” the board’s primary obligation becomes obtaining the best price for shareholders[13]. In practical terms, the WBD board cannot ignore a higher bid like Paramount’s just because it had a prior agreement with Netflix[14][15]. Doing so would risk breaching their fiduciary duty to shareholders.
Under these “Revlon duties,” the board must seriously evaluate Paramount’s $108 billion offer, which is materially higher than Netflix’s (approximately a 139% premium over WBD’s pre-talks value, and above Netflix’s $27.75/share bid)[2][16]. If the board unreasonably favors Netflix’s lower offer without a strong justification, shareholders could file lawsuits alleging the directors failed to act in shareholders’ best interests[16]. Indeed, Delaware courts have held that once an auction or sale process begins, “shareholder value is king” – maximizing the immediate value often takes priority over other considerations[17].
However, price isn’t the only factor. The board can consider deal certainty and risks in determining what truly serves shareholders’ best interests[18]. For example, Paramount’s bid, while higher in cash, might pose greater regulatory or financing risks than Netflix’s. (Notably, Paramount’s offer involves merging two major TV-content companies and raising funds from investors tied to political figures, which could complicate approval[19][20].) The board can weigh whether the higher price might be offset by a lower likelihood of closing or a longer, riskier road to completion[18]. In short, WBD’s directors must balance highest price vs. deal certainty. Their fiduciary duty under Revlon generally pushes them toward the highest value, unless legitimate concerns justify favoring a slightly lower but more secure deal.
Navigating a Superior Bid: Process and Deal Protections
Most merger agreements anticipate the possibility of an unsolicited higher offer. The Netflix–WBD agreement likely contains a “fiduciary out” clause, allowing WBD’s board to consider a “Superior Proposal” that emerges[21]. Here’s how the typical process unfolds when a signed deal faces a competing bid (often called a “deal jump” scenario):
-
Board Evaluation of the New Offer: The target’s board, with its financial and legal advisors, must determine if the unsolicited bid is indeed superior. This involves comparing not just the prices, but also the terms, financing, regulatory hurdles, and timing of the offers[18]. In WBD’s case, the board will assess Paramount’s $30/share all-cash offer versus Netflix’s $27.75/share mixed offer, factoring in the scope of assets (Paramount wants all of WBD, Netflix only part) and the likelihood of each deal closing successfully[10][11].
-
Fiduciary Out & Recommendation Change: If the board concludes the new bid is superior, the fiduciary-out provision allows them to change their recommendation. WBD’s board could then withdraw support for the Netflix deal and endorse Paramount’s offer – but usually only after following contract steps like notice to the original buyer.
-
Matching Rights Period: It’s common for the initial merger agreement to grant the first bidder (Netflix) a chance to match or improve their offer before the target can switch sides[22]. For example, WBD might be required to give Netflix a few days to counter Paramount’s bid. Netflix could respond by increasing its price or adjusting terms to maintain a superior status, or it might stand firm or walk away[22]. So far, Netflix’s leadership has signaled confidence in its deal and indicated it expected Paramount’s move[23], but time will tell if Netflix will sweeten its offer.
-
Breakup Fee Payment: If WBD ultimately terminates the Netflix deal to accept Paramount’s proposal, WBD must pay Netflix a breakup fee as a penalty (compensating Netflix for its time and risk in negotiating the original deal)[24]. According to reports, WBD’s breakup fee to Netflix would be $2.8 billion[25]. Conversely, if Netflix’s deal falls through for other reasons (e.g. regulatory rejection), Netflix owes WBD a larger reverse breakup fee (around $5.8 billion)[25]. Any new bidder like Paramount will factor in covering the target’s breakup fee obligation as part of its offer. In this case, Paramount knows an extra $2.8 billion may effectively go toward Netflix’s fee if Paramount wins the deal[26].
-
Shareholder Decision: Ultimately, the fate lies with WBD’s shareholders. Even if the board sticks with Netflix’s deal, shareholders will vote on that merger – and they might vote “No” if they believe Paramount’s cash offer is clearly better. Separately, Paramount’s tender offer puts immediate pressure on shareholders to tender their shares by the offer deadline (Paramount set an expiration of Jan. 8, 2026)[11]. If a large majority of shareholders favor Paramount’s price, the board’s position can become untenable. We have already seen WBD’s stock price jump on the news of the bidding war[27], indicating the market’s anticipation of a higher buyout.
Through this structured process, corporate law and deal contracts seek to ensure that shareholders get the benefit of any bidding contest, while still providing an orderly way to transition from one deal to another. WBD’s board must follow the agreed procedures, but cannot ignore Paramount’s bid without proper consideration – doing so would not only violate Revlon duties as noted, but also could cause shareholders to rebel or sue.
Defensive Measures Against a Hostile Takeover
If WBD’s board ultimately decides that Paramount’s hostile bid is not in the company’s best interests (due to regulatory risks or other strategic reasons), they have tools to defend against a hostile takeover. Some common takeover defenses include:
-
Poison Pill (Shareholder Rights Plan): A poison pill is a defense where the target company issues special rights to existing shareholders (other than the bidder) that trigger if any one shareholder acquires a large stake (e.g. 10-20%). The effect is to dilute the bidder’s stake or make the acquisition prohibitively expensive. WBD’s board could adopt a poison pill to block Paramount from buying shares beyond a certain threshold without board approval. This would force Paramount to negotiate with the board rather than unilaterally seize control. (For instance, Twitter famously used a poison pill in 2022 to slow Elon Musk’s unsolicited takeover attempt.) Note: If WBD already signed a merger agreement with Netflix, there may be restrictions on issuing new securities or implementing a pill without consulting Netflix – but generally, boards retain the power to deploy a pill to fulfill fiduciary duties in face of a new threat.
-
Delaware Anti-Takeover Law (Section 203): Warner Bros. Discovery is incorporated in Delaware, whose law Section 203 automatically impedes hostile acquirers. Under Section 203 of the Delaware General Corporation Law, if a bidder acquires 15% or more of a company’s stock without board approval, the bidder cannot complete a merger with the company for 3 years unless they acquire at least 85% of the stock in one go (or meet other exceptions)[28]. This means even if Paramount buys a majority of shares via tender, it cannot legally merge WBD into itself for three years unless WBD’s board agrees or a supermajority of shareholders tender. This statute gives the target board leverage to negotiate or delay an unwanted suitor[29][28]. Paramount’s offer is conditioned on Section 203 being made inapplicable (either by getting 85% of shares or by the WBD board waiving the restriction)[30]. In practice, Section 203 often forces hostile bidders to eventually work with the board (or win a drawn-out proxy fight to replace the board).
-
Staggered Board: If WBD has a classified (staggered) board, only a fraction of directors are up for election each year. This prevents a hostile bidder from quickly replacing the whole board at a single shareholder meeting. A staggered board can slow down a takeover by requiring the bidder to win multiple elections over time to gain board control. (It’s not publicly confirmed if WBD’s board is staggered, but many companies use this as a defense mechanism.)
-
White Knight Alternative: Another defensive tactic is seeking a “white knight” – a friendly third-party company that the target prefers as an acquirer. In this case, Netflix was already the favored bidder in a friendly deal. However, if WBD’s board becomes uncomfortable with Paramount, it could potentially encourage a different friendly bidder (say, another media or tech company) to enter the fray with a better offer that is still board-approved. The white knight would “rescue” the target from the hostile bidder by providing shareholders a preferable option. (Interestingly, WBD’s situation is a bit reversed – the friendly “knight” came first (Netflix), and the hostile party later – but if Netflix’s deal falters, a new white knight could emerge.)
-
Litigation and Regulatory Levers: A target can also sue to block a hostile bid on various grounds (such as accusing the bidder of misinformation in their offer documents or other legal violations). Additionally, the target can lobby regulators and policymakers to scrutinize the bidder’s proposal. We see elements of this in WBD’s case: concerns have been raised publicly about antitrust and national security issues with Paramount’s bid (involving foreign sovereign funds and political connections)[19][20]. Those issues can slow or derail a hostile deal, effectively aiding the target’s defense if they prefer a different partner.
It’s worth noting that WBD’s board cannot simply ignore shareholder interests while employing defenses. Courts uphold defensive measures only if the board has reasonable grounds to perceive a threat to corporate policy or shareholder welfare, and if the response is proportionate to the threat (per the Unocal/Unitrin standards in Delaware law). For example, rejecting a higher offer might be justified if the board genuinely believes the offer faces insurmountable financing or regulatory barriers that could leave shareholders with nothing but a failed deal. In WBD’s scenario, the board’s stated concerns about Paramount’s financing and the political entanglements may be part of their justification[31][32]. Ultimately, any defensive tactics would likely be tested in court by shareholders or the bidder if seen as entrenching management at shareholders’ expense.
Conclusion
The unfolding contest for Warner Bros. Discovery between Netflix and Paramount is a landmark case study in M&A strategy and corporate law. It highlights how boards of directors must balance fiduciary duties to maximize value with practical considerations of deal certainty and stakeholder impact. It also showcases the arsenal of legal mechanisms in play during takeover battles – from contractual safeguards like fiduciary outs and breakup fees, to defensive statutes and tactics to fend off unwelcome bidders.
As this saga evolves, it will provide further clarity on the limits of board discretion under Revlon, and on how aggressively a determined bidder can press its case in the face of resistance. Companies contemplating mergers or facing unsolicited offers can draw important lessons here: a signed deal isn’t final until it closes[17], and boards must always be prepared to demonstrate that any decision they make truly serves shareholders’ best interests.
We will continue to monitor this high-profile takeover battle and its legal ramifications. In an era of consolidation and bold strategic moves in the media industry, expert legal guidance is crucial for any company navigating similar waters. Boards, executives, and investors alike should stay vigilant and informed – the Warner Bros. saga underscores that in M&A, surprises can and do happen, and the law provides a framework to handle them when they arise.
[1] [2] [3] [4] [5] [6] [10] [12] [19] [20] [23] [25] [26] [27] [31] [32] Warner Bros fight heats up with $108 billion hostile bid from Paramount | Reuters
[7] [8] [9] [11] Paramount goes hostile in bid for Warner Bros. | AP News
[13] [14] [15] [16] [17] [18] [21] [22] [24] Warner Bros: Understanding Hostile Bids Today - EverydayCPE
https://everydaycpe.com/he-war-for-warner-bros-what-happens-when-a-signed-deal-gets-a-hostile-bid/
[28] [29] [30] EX-99.(a)(1)(A)
https://www.sec.gov/Archives/edgar/data/1437107/000119312525310708/d92876dex99a1a.htm
