Warner Bros M&A Case Study: Netflix vs. Paramount, Hostile Takeovers & Legal Reality

In December 2025, the corporate and legal communities witnessed a dramatic escalation in the battle for Warner Bros. Discovery (WBD), where a traditionally friendly acquisition began to take on the characteristics of a classic hostile takeover. Paramount Skydance’s direct appeal to WBD shareholders, challenging a preferred agreement between WBD and Netflix, illustrates not only strategic maneuvering in modern mergers and acquisitions (M&A) but also the complex interplay between shareholder interests, board fiduciary duties, and takeover law under U.S. corporate governance regimes.

Hostile Takeovers

A hostile takeover occurs when an acquiring entity makes an offer directly to shareholders of a target company without the support or approval of the target’s management or board. Typically, this takes the form of a tender offer at a premium price above market value or a proxy contest seeking to replace directors with candidates favorable to the bidder’s proposal.

This mechanism stands in contrast to negotiated, friendly acquisitions, where the target board and bidder collaboratively structure terms and negotiate acquirer governance rights. In hostile bids, the board’s resistance is often met with legal and practical countermeasures, including defensive tactics and litigation.

Statistical Reality 

Despite their prominence in media and academic literature, hostile takeovers succeed far less frequently than friendly deals. According to an empirical study of over 54,000 M&A transactions in the United States between 1990 and 2005, only approximately 24 % of hostile takeover attempts were successful.

This low success rate reflects robust defensive legal standards in U.S. corporate law, particularly in Delaware, the jurisdiction of choice for many public corporations. Delaware courts historically grant boards discretion to deploy defensive mechanisms so long as directors act in good faith and seek the best reasonably available transaction for shareholders.

Consider the seminal case Paramount Communications, Inc. v. Time Inc. (Del. Ch. 1989), which validated the board’s use of defensive measures to pursue long-term corporate strategy over immediate shareholder cash-out value, a principle that continues to shape hostile takeover jurisprudence.

Defensive Measures & Legal Doctrine

Boards under hostile pressure typically pursue several legal defenses:

• Shareholder Rights Plans (“Poison Pills”): These plans dilute the economic stake of a bidder who acquires a certain percentage of shares, thereby raising the cost of takeover and discouraging unsolicited acquisition.

• Fiduciary Duty Scrutiny: Directors must demonstrate they are acting in the best interests of shareholders. Hostile bids trigger intense judicial scrutiny of board decisions in jurisdictions such as Delaware, where courts balance business judgment with shareholder interests.

• Proxy Contests and Litigation: The bidder may initiate proxy fights or seek court orders to limit defensive safeguards (e.g., challenging poison pills), leading to complex litigation and regulatory engagement.

Each of these tools involves nuanced legal analysis encompassing securities laws, corporate governance standards, and, in some cases, antitrust concerns.

Case Study: Paramount vs Netflix 

In early December 2025, after Warner Bros. Discovery’s board agreed to a $72 billion equity deal with Netflix, Inc., Paramount Skydance responded by launching a hostile takeover bid directly to WBD shareholders, offering approximately $30 per share and a total enterprise value of over $108 billion.

Paramount’s strategy reflects several key legal points:

1. Direct Appeal to Shareholders: Paramount bypassed WBD’s management, a hallmark of hostile takeovers.

2. Competing Offers and Fiduciary Duty: The WBD board, having previously entered a preferred agreement with Netflix, must now evaluate competing bids under fiduciary standards, balancing cash value, regulatory timelines, and strategic fit.

3. Regulatory Considerations: High-profile transactions of this magnitude inevitably trigger antitrust review by the U.S. Department of Justice, Federal Trade Commission, and potentially foreign regulators — adding layers of legal analysis regarding competition law and transaction structuring.

Legal & Strategic Implications

The Paramount–WBD episode underscores broader lessons for in-house counsel, private equity sponsors, and sophisticated corporate acquirers:

• Probability of Success: With only about one in four hostile bids succeeding in the U.S., parties must calibrate their valuations and tactics realistically, integrating defensive legal risk assessments at early stages.

• Jurisdictional Nuances: Legal frameworks differ internationally, hostile bids tend to succeed more frequently in jurisdictions with less protective board powers. Comparative counsel must account for regulatory and governance regime differences.

• Regulatory and Antitrust Strategy: For megadeals, antitrust risk is as consequential as shareholder litigation. A comprehensive bid requires concurrent planning for regulatory sign-offs and structural remedies.

Record High Breakup Fee Clause

A standout contractual element in the Netflix–Warner Bros. Discovery transaction is the inclusion of an exceptionally large breakup (termination) fee, which Netflix has agreed to pay Warner Bros. Discovery if the merger fails to close, including on account of regulatory refusal or other closing conditions not being satisfied. Under the terms of the agreement, Netflix would pay approximately $5.8 billion in such circumstances, an amount that represents around 8 % of the deal’s equity value and places it among the largest breakup fees on record in major M&A transactions globally.

From a legal and strategic perspective, this breakup fee fulfills several critical functions in a contested acquisition environment:

• Compensation for Delay & Opportunity Costs:
  Large termination fees compensate the target for the time, resources, and strategic opportunities lost while pursuing the exclusive agreement, especially when the seller has foregone alternative strategic options.

• Regulatory Risk Allocation:
  By shouldering a significant financial penalty tied to regulatory outcomes, the acquirer signals confidence in its ability to navigate antitrust and competition review and absorbs a portion of the regulatory risk that might otherwise disadvantage the target.

• Deterrence of Competing Bidders:
  An unusually high breakup fee may act as a deterrent to rival suitors by imposing a heightened cost structure on alternative transactions, complicating efforts by rivals, such as Paramount Skydance, to persuade the target board or shareholders to abandon the incumbent agreement.

• Fiduciary & Judicial Scrutiny:
  Although breakup fees are standard in M&A, courts, particularly in Delaware, where most large U.S. public company deals are governed, will examine whether the fee is reasonable and proportionate to actual anticipated damages. A fee materially exceeding typical industry norms can, in theory, be challenged as unduly restrictive of competitive bidding or as impermissibly favoring one bidder over others.

Conclusione

Hostile takeovers remain a relatively rare but legally significant phenomenon in global M&A. The Paramount Skydance bid for Warner Bros. Discovery, set against a competing friendly acquisition by Netflix,  illustrates both the enduring relevance of hostile strategies and the robust legal frameworks governing them.

For legal practitioners and corporate decision-makers, a deep understanding of hostile takeover mechanics, defensive doctrines, judicial standards, and regulatory dynamics is essential. In an era of intensified cross-border competition and corporate consolidation, crafting strategies that navigate these complexities is central to achieving successful outcomes for clients and shareholders alike.