And now to the main event…

Warner Bros. Discovery’s 14D-9 filing, which dropped this week, offered the latest and clearest explanation yet of why the company’s board just can’t seem to get comfortable with Paramount Skydance’s $30-per-share, $108 billion all-cash offer for the company. As I noted last week, it all started with doubts about whether the Ellisons’ $40.7 billion of equity would definitely show up at the close of its hostile offer. Yes, of course, Larry Ellison is good for the cash, but the assurances that he and his son David have thus far offered haven’t yet satisfied the WBD board.

The bid is backstopped by the Larry Ellison Revocable Trust, which holds 1.16 billion of his Oracle shares. And while that entity would presumably satisfy the boards of most target companies, it hasn’t placated WBD in a dynamic auction. The trust, after all, is revocable—Larry can change it anytime he likes.

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Another troublesome wrinkle in the Paramount bid is the provision that allows its other equity partners—including three Gulf sovereign wealth funds, which are ponying up $24 billion collectively—to walk away from the deal if any of the other partners decide not to fund it, and without consequence. As I predicted last Sunday, Jared Kushner’s Affinity Partners and its $200 million equity commitment dropped out this week. Does that mean the other partners might also drop out? Who knows? But you can see why it might be giving the WBD board cause for concern. “Larry didn’t show up, and David got ahead of his skis,” is how one person close to this deal on the WBD side put it to me recently.

For his part, Gerry Cardinale, the Ellisons’ partner at RedBird Capital, told my partner Matt Belloni that any doubts about the Ellisons’ equity commitment constituted “a false narrative” and “a bunch of red herrings” designed to justify a decision that David Zaslav seemed to have already made to sell to Netflix. “You can’t tell me,” he said, “that on a $108 billion deal that the second [now fifth] richest guy in the world is backstopping with us, and is the largest economic owner of this, when you look at these bids next to each other—you can’t tell me you’re going to go immediately to exclusivity with Netflix.” But, of course, that is what happened: The WBD board preferred Netflix’s latest bid of $27.75 per share, in cash and stock, just for Streaming & Studios, along with the Discovery Global equity stub. (A transcript of Matt’s conversation with Gerry has also made it into WBD’s S.E.C. filings.)

The 14D-9 revealed other surprising details that help explain the WBD board’s preference—particularly PSKY’s ongoing insistence on having a right to approve various balance sheet cleanups that WBD needs to undertake between signing and closing, a period that could last 18 months or longer. For its part, Netflix didn’t demand a similar consent, and agreed to merely be consulted on WBD’s management of the business pre-closing. Then there’s the matter of breakup fees and other alleged faux pas that might not seem like much on their own, but which cumulatively created a feeling of discordance. (Usual disclosure: Through a recent transaction, Zaz is a de minimis investor in Puck; RedBird is a minority investor.)

First, as part of the brilliant exchange offer that it executed last summer, WBD received a bridge loan from JPMorgan Chase. There remains $15.4 billion outstanding on the bridge loan that must be paid or refinanced by the end of 2026. That balance will be listed as a current liability—due to be repaid within one year—in the 2026 WBD financial statements that will be filed next year. If there’s any question about whether that loan can be refinanced with new, long-term debt—new WBD loans or bonds—the company’s accountants have no choice but to issue a “going concern” opinion on those financial statements.

That’s a significant red flag that could impact WBD’s ability to enter into all sorts of new contracts, including with sports leagues, Hollywood talent, and trade creditors—effectively preventing the company from operating in the normal course of business. There would likely not be a problem if WBD can refinance the bridge loan under its own authority. But if PSKY’s consent to the refinancing is required between signing and closing, and if, for whatever reason, executives at the company decided not to provide it, then that “going concern” opinion becomes a big problem for WBD.

Sure, Gerry or the Ellisons might argue, they wouldn’t have a heavy hand and would want only what’s in the best interest of the company. But investors speak through their terms, and this is a significant point of leverage. PSKY also insisted on having consent over a pending exchange of $15 billion of existing WBD debt for new “junior lien notes.” If the exchange weren’t completed between signing and closing, and in any event by the end of 2026, then WBD would “trigger a penalty” of $1.5 billion “without any compensation” for that penalty from PSKY, according to the 14D-9.

The financial and legal advisors for WBD discussed this point repeatedly with PSKY’s financial and legal advisors, but attorneys for the suitor insisted on the consent provisions in its markup of the merger agreement. Eventually, in its December 4 bid, representatives for PSKY agreed to allow the exchange to occur—but only if WBD agreed to a provision, when it did the exchange, that would have the new bonds be callable at par, not higher than par, which is a far more typical call-provision language. According to someone familiar with the various negotiations, “Their consent was, on the face of it, Yeah, fine—subject to a condition that will never be satisfied. And so if the condition is not satisfied, then you’ll need to come [back] to me.” Meanwhile, Netflix played nice on this front, too, giving up its right to consent and settling on being merely consulted on this exchange.

Another irritant to the WBD crowd was how PSKY intended to handle the payment of the $2.8 billion breakup fee that would be due and payable to Netflix within days of the WBD board’s decision to switch its recommendation to PSKY in the event that the board determined its bid offered more value. Of course, WBD would have to pay that fee out of its own coffers, but it is traditional M&A etiquette for the company busting up another’s merger agreement to agree to effectively reimburse its suitor for the fee. For example, in 2017, Comcast offered to pay the breakup fee to the Fox Corporation if it decided to sell its Hollywood assets to the cable guys in Philly instead of Disney. (Ultimately, of course, Fox sold the businesses to Disney.) But, in this case, PSKY made no such offer.

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The 14D-9 makes clear that the WBD board concluded that the combination of the two sticking points—the non-reimbursement of the $2.8 billion breakup fee, and the $1.5 billion penalty for failing to exchange the $15 billion of WBD debt—would cost the company significantly. “This total amount of $4.3 billion in immediate and near-term costs represents a loss of value of approximately $1.66 per share of WBD Common Stock, on a pre-tax basis, if the PSKY Merger Agreement is entered into but not consummated,” according to the WBD filing. I don’t know whether the WBD board reduced the PSKY $30-a-share bid by $1.66 per share—lowering it, at least in their minds, to something like $28.34 per share. But the combination of this perceived reduction, plus the concerns about the Ellisons’ equity commitment, plus the valuation of the Netflix bid for Streaming & Studios and the Discovery Global stub, suggests why the WBD board was unanimous in going with Netflix—at least for now. (A spokesman for PSKY declined to comment. But someone close to the PSKY action said that it will, of course, pay the breakup fee, and work with WBD to effect the exchange between signing and closing. “They are running out of things to complain about the bid,” this person said.)

Of course, a higher bid from PSKY—something in the range of $34 per share, in cash, or another $10 billion or so, and unequivocally backstopped by Larry—would throw the whole calculus of the deal back to the drawing board. But, as Gerry suggested to Matt, PSKY won’t go there yet. These guys are shrewd negotiators, and the WBD board hasn’t technically responded to their sixth but presumably not final offer.

In the meantime, WBD is marching forward with Netflix. On Wednesday, there was a well-publicized meeting on the Warner Bros. lot between Zaz and Netflix co-C.E.O.s Ted Sarandos and Greg Peters to “talk about the future,” as someone familiar with the conversation told me. Netflix has also started down the regulatory approval process, completing the required Hart-Scott-Rodino filings. The company is starting the process required by the European regulatory authorities, too. For its part, WBD is also working on the filing of its proxy statement for a shareholder vote on the Netflix deal. Also on Wednesday, Samuel Di Piazza, the chairman of the WBD board, said on CNBC that the proxy would be filed by late spring, early summer of 2026.

And yet despite these attempts to demonstrate that the train is leaving the station, PSKY remains as feisty as ever. In a press release on Wednesday, the company reiterated in no uncertain terms that its equity was secure. “Paramount has lined up all necessary financing to deliver its offer to WBD shareholders, and it is not subject to any financing conditions,” it wrote. “Paramount’s offer will be financed by $41 billion of new equity backstopped by the Ellison family and RedBird Capital and $54 billion of debt commitments from Bank of America, Citi, and Apollo.” It also laid into the WBD board and its advisors for “the absence of any engagement” with PSKY about its $30-a-share bid. “WBD seeks to justify racing to conclude an inferior deal with Netflix with a ‘kitchen sink’ litany of purported questions and concerns.”

Matt has already noted some of the staggering windfalls that will come out of this evolving deal. Zaz will get a $30 million cash bonus plus his various stock and options, which will vest upon change of control, giving him a total payout of roughly $568 million. Gunnar Wiedenfels’ total adds up to $145 million; JB Perrette, the C.E.O. of global streaming and games, will receive $167 million; Bruce Campbell, the chief revenue and strategy officer, will receive $138 million; and Gerhard Zeiler, the president of WBD international, will receive $95 million.

But don’t forget the WBD investment bankers, who will also be rather well paid, the S.E.C. filing reveals. Both Allen & Co. and JPMorgan Chase will receive fees of $85 million each—$45 million of Allen & Co.’s fee and $50 million of JPMorgan Chase’s will be payable when the Netflix deal closes. Evercore’s fee is $55 million. And given that this deal is nowhere near its conclusion, those compensation totals and fees will only go up. Thankfully, everyone will eat this Christmas.

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