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Paramount closed its $110 billion takeover of Warner Bros… when it was worth… $11 billion? The question is… how? How is it that a company can acquire a giant, seven times bigger? The mechanics of how this all played out, are crazy, but also, happening more often. Something is changing. You no longer need to dilute shares or have lots of cash on hand to buy a giant. You just need one important thing. Which is how Paramount acquired Warner Bros… and made them pay for it. Now Paramount is not a small company… But it is much smaller than Warner Bros. At the time of the deal, Paramount was worth about $11 billion.
Warner Bros Discovery, was worth $77.71B. About seven times larger. To find out how, we need to go back, to when the architect of this entire merger first took over Paramount, just a few years ago. Some companies have two classes of shares. Class A, and Class B. Typically, one of them has most of the votes. In the case of Paramount, it's Class A. Which means, you don't need to own the whole company… or even a majority, just enough voting power. Paramount was controlled by another company, National Amusements, owned by the Redstone family. National Amusements held 77% of Paramount's votes… and just 10% of the company. Which is exactly how one man seized control of Paramount,
for… not $11 billion, but just $2.4 billion. David Ellison. You might recognize that name, "Ellison". That's because he's the son… of Larry Ellison. Co-Founder and Chairman of Oracle. Larry was, at least briefly, the richest man on earth last year, after announcing a deal between Oracle and OpenAI. He's currently #8, and this will be very important later. But by 2025, David Ellison's group, by acquiring National Amusements, now controlled Paramount. And this would set the stage for the massive acquisition just a couple years later.
But, the Warner Bros merger… wasn't done this way. Paramount, wanted the entire company, and the way that was done, was even stranger. It would take a lot more money, a lot more partners, and have a lot more opposition. On September 11th, 2025, the Wall Street Journal reported that Paramount was preparing to buy Warner Bros. This caused the Warner shares to jump 30%, to $40 billion, compared to Paramount's $19B. Sure enough, later that month, Paramount makes its first offer: $19 a share, part cash, part Paramount shares.
This is a pretty standard acquisition… …and the Warner Bros board rejects it. Paramount makes a second offer. $22 a share, plus $2 billion if regulators block the deal. The Warner Bros board rejects it. Paramount offers $23.50 a share.The Warner Bros board rejects it. From here, things get a bit crazy, and I think the Ellisons realized they'd need to flex more financial muscle to conquer Warner Bros. Business ideas don't die because they're bad. It's not really about the idea at all, but turning from an idea, into action. And one of the best ways t o get the ball rolling is getting the business online.
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Netflix would buy the studios, HBO, and HBO Max for $27.75 a share, $82.7B including debt. A cash and stock deal, like Paramount. A public company traditionally pays for an acquisition in one of two ways: with its own shares, or with cash borrowed against its own earnings. Both limit it to targets near its own size. Netflix, fit your typical acquisition description. A stock and cash deal, from a much bigger company, with lots of revenue, and deep pockets. But, an Ant can't acquire a Giant, with a stock deal.
But Paramount could no longer afford a stock offer. And to understand why, let's briefly look at another acquisition. In September 2001, HP announced it would buy Compaq for $25 billion, entirely in stock. HP's shareholders voted, 51.4% for and 48.6% against, and the son of the HP co-founder pushed back against it. HP shares began to fall, and so did the purchase price. To $21 billion. Then to $19 billion. HP and Compaq were roughly the same size, but just imagine how many shares Paramount would need to issue, to compete with Netflix.
Paramount's own shares were worth only about $19B, and just $14 billion at the start of 2026. The existing owners would be diluted into… basically nothing. If you pay in your own shares for a company seven times your size, Warner Bros, would end up owning most of the merger. And on hand, Paramount had just $3.3 billion… not to mention $13 billion of debt. But David Ellison, wanted control of the whole thing. So where the heck did they find around $80 billion? Well Paramount took a different approach. And here, we need to talk about two secret weapons they brought to the table.
Paramount decided to launch a "hostile tender offer". If the board keeps rejecting you, go to the people who actually own the company. The shareholders. Offer them the money directly. But, Paramount needed to get that money first. So the first thing Paramount did, which isn't anything new, is raise debt. $54B of loans, committed from Bank of America, Citi, and Apollo. That's a lot of debt… And as we'll soon see, I think this might be the most ironic part of the whole takeover.
Nonetheless, this still wasn't enough, which brings us to Paramount's first secret weapon. Ellison wealth. David Ellison had his father's wealth at his disposal, and this was a large part of how they funded the takeover. This was less a Paramount acquisition, and more of an Ellison acquisition. But this came with a huge problem. Larry Ellison also backed the deal way back in September, during the first bid. But Warner Bros, didn't see it as a good offer. In the board's letter to shareholders, they said: "[Paramount] has consistently misled WBD shareholders that its proposed transaction has a 'full backstop' from the Ellison family. It does not, and never has. The Ellisons were
relying on an unknown and opaque revocable trust for the certainty of this crucial deal funding. A revocable trust is no replacement for a secured commitment by a controlling stockholder." And the board was right. Larry Ellison's wealth is in a revocable trust. A revocable trust can be changed or emptied by its owner at any time, and could disappear before the deal is finished. So, Paramount launches their hostile tender offer. $30 a share in cash for all of WBD. $18B more than Netflix's. Paramount also raises the fee it would pay Warner Bros, if regulators blocked the deal, to $5.8 billion.
Larry Ellison also gave an "irrevocable personal guarantee of $40.4 billion of the equity financing", and agreed not to revoke the Ellison family trust. But, this was still just in a trust, not with Paramount. Then, Paramount does something interesting. The Ellison family trust commits up to $46.72B to buy brand-new Paramount shares at $16.02 each. Specifically, Class B stock, which has no voting rights. That's 2.9B new shares, and a 60% premium to the market. But isn't this diluting ownership? Well yes, but not for the Ellisons. They still hold the voting power. But it wasn't just the Ellisons funding this takeover.
The commitment was "up to $46 billion of new shares" and some of those shares, $24 billion worth, were being bought by someone else. Paramount's second secret weapon. Sovereign wealth funds. Saudi Arabia's PIF, an Abu Dhabi fund (L'imad), the Qatar Investment Authority, and LionTree, a New York investment firm. And this is becoming far more common. By 2026, sovereign wealth funds passed $15 trillion in assets for the first time. In 2025, there was $278 billion across 562 investments.
The recent takeover of Electronic Arts, for example, was done largely by Saudi Arabia's PIF. The three Gulf funds would invest about $24 billion. But the stranger part, is that… these wealth funds would hold zero voting power in the Paramount Warner merger. The Ellisons would own the vast majority of voting rights. But, things got even more tense from here. The board says "[Paramount] is a company with a $14 billion market capitalization attempting an acquisition requiring $94.65 billion of debt and equity financing, nearly seven times its total market capitalization. This aggressive transaction structure poses materially more
risk for WBD and its shareholders when compared to the conventional structure of the Netflix merger." Netflix, changes to an all-cash deal, which for the size of the offer, was pretty impressive. But, if we look back to the HP Compaq example, we can understand why. Their share price, was falling, weakening their earlier offer, which included stock. Paramount seems to have an edge, and they do something crazy. They raise their price to $31 a share, but also essentially pay Netflix, to go away.
Paramount offers to pay the $2.8B breakup fee WBD owes Netflix. They also offer to pay $7 billion if regulators block the deal. And, they add a "ticking fee". Every quarter the deal is delayed, they would raise the price $0.25 a share. They were removing Warner Bros' reasons to say no. Of course, they couldn't remove the biggest reason, which we'll get to soon. But, this had swayed things a lot. The board called this deal "superior" to Netflix's, who doesn't match. Netflix co-CEO Ted Sarandos calls Paramount's bid "unusual" and "irrational", and, he isn't wrong. But on February 27, 2026, Paramount and Warner Bros Discovery sign a merger agreement:
$31 a share in cash, $80.9B for the shares. The largest all-cash deal in corporate history. The merged company will be called Skydance. And there's a huge, glaring problem with all of this. You might have picked up on it. Debt. Debt, debt, a whole lot of debt. This is the strangest, most ironic part of this whole merger. And how, in the end, the one truly paying for this entire thing… is Warner Bros. The total cash cost of the merger was $80.9B, but that's just for the shares. The total value of the deal was actually $110 billion, because of Warner Bros' existing debt.
Warner Bros, had just gone through another merger a few years ago. In 2021, WarnerMedia was owned by AT&T, after their acquisition in 2018, when they acquired Time Warner for $85.4 billion. AT&T then spun off WarnerMedia, which is what they renamed the company, into Discovery, to form "Warner Bros Discovery", for $43 billion in cash, while AT&T shareholders still owned 71% of the new company. Obviously, this left Warner Bros, in a pretty bad spot. Debt from all these different takeovers and mergers piled up, and the company ended 2025 with $29 billion of it.
It was worth about $25 billion in early 2025, not too much more than Paramount. But after the bidding war, its value had grown 3.2x, up $56B. Though, even if the value skyrocketed, it was still money Paramount had to find. Which brings us to why I think this is so ironic. Paramount had $15 billion of debt. Warner Bros Discovery had about $30 billion. And Paramount borrowed $52 billion to finance the deal! Which left the new company with… wait for it… $80 billion in debt. 7.6 times their combined earnings. And Skydance, which in large part is Warner Bros, has to pay off. So, in a way, the one who really has to pay for the merger, is Warner Bros.
The question now, is how the heck are they going to pay this off? This is the ongoing question, and the pressure now sitting on Skydance's Chairman and CEO David Ellison and the newly appointed co-CEO Ynon Kreiz. They've promised more than $6 billion a year in cost savings, within 3 years of closing the deal. Which they say will come from "non-labor sources". Ted Sarandos, from Netflix, believes "there'll be cuts in excess of $16 billion. They are telling people who lend them the money that's gonna happen in 18 months or so. It would be less production, less people working."
In the day one memo to employees, Ellison and Kreiz said "Integrating two companies will bring change, including difficult decisions that affect our workforce." So, yeah, layoffs I expect. So, how does an Ant acquire a giant? Not on its own. It borrows from others. It takes on debt to pay for it. Which means, the giant ends up paying it all back. Warner Bros, has been through a lot. They can't seem to stop getting bought. Another example, is that AT&T purchase, which was an even bigger disaster. AT&T envisioned owning a streaming empire, and saw Warner Bros as the way to achieve it.
But, it turned out to be catastrophic, and left AT&T with over $170 billion dollars of debt… Yeah. Watch this video next to learn the rest of the story.
