Why Warner Bros. Discovery dialed up the heat in its latest rejection of Paramount

• Warner Bros. Discovery escalated its language in rejecting Paramount's bid for the eighth time.
• WBD said Paramount was in weak financial condition and had a history of media leaks.
• M&A experts broke down the strategy behind WBD's tough talk.

Warner Bros. Discovery's board raised its hackles on Wednesday while rejecting Paramount Skydance's bid for the eighth time in favor of Netflix's offer.

WBD used pointed language, calling Paramount's bid the "largest leveraged buyout in history by a wide margin" and tying its potential failure to previous big LBOs that didn't close on the initially agreed-upon terms.

In its new filing, WBD also described Paramount's financial condition as "not strong," noting that its credit was already rated "junk" by S&P before the "extraordinary amount of debt financing" required by the deal. Paramount, for its part, has emphasized that $40.4 billion in equity of its new bid is fully backstopped by Oracle cofounder Larry Ellison, the father of Paramount CEO David Ellison.

WBD's strong language suggests that the board and leadership "just want to move on," and the "largest LBO" angle is a new and compelling one, Wharton M&A professor Paul Nary said on X.

David Zaslav-led WBD also ramped up its accusations that Paramount has acted litigiously and leaked to the press.

In the filing, WBD cited new press reports in the New York Post indicating Paramount was considering abandoning its offer and might pursue "DefCon 1" litigation against WBD's board. WBD said that Paramount didn't deny the reports, suggesting that the company was leaking to the press. WBD had previously complained that there had been "extensive media leaks and rumors" about Paramount's proposals.

M&A experts said the stepped-up language was likely drafted in anticipation of a lawsuit against WBD, either by Paramount or WBD shareholders.

Now that Paramount has lost to Netflix, "it is likely to attempt to seek legal remedy such as a shareholder derivative suit or potentially a direct lawsuit," said Raul Gastesi, a partner at Gastesi Lopez Mestre & Cobiella.

Corey Martin, managing partner of Granderson Des Rochers, a law firm focused on entertainment and media, said the new filing felt calibrated to deter WBD shareholders from backing Paramount's hostile bid.

"The audience is really the shareholders, because there's always the risk of shareholder lawsuits," Martin said. "It is colorful stuff, but Paramount's is a hostile bid."

Martin also saw the emphasis on legal and press tactics as part of a PR strategy to portray Paramount as a bad actor, as well as a pre-litigation tactic.

So, what happens now?

LightShed Partners analyst Rich Greenfield wrote in a note on Wednesday that Paramount could still outbid Netflix, but it would "require an overhaul of their current bid, and a dramatic increase in the cash invested from the Ellison family and/or their friends and financing partners."