Fiduciary Duties and Structural Engineering in the Battle for Warner Bros. Discovery

I. Introduction: The Valuation Paradox

In Delaware corporate law, the highest price has long been treated as the governing principle once a board discharges its duties under Revlon, Inc v MacAndrews & Forbes Holdings, Inc. The 2026 contest for Warner Bros. Discovery (WBD) has challenged that orthodoxy. WBD found itself at the centre of a three-bidder contest: a negotiated $82.7 billion all-cash merger with Netflix and a $108.4 billion hostile tender offer from Paramount Skydance (PSKY). The legal flashpoint arrived on 20 January 2026 when Netflix amended its offer from a mixed cash-and-stock structure to an all-cash bid of $27.75 per share, eliminating stock volatility and pricing collars to compete directly against Paramount’s higher $30.00-per-share offer. This article calls the strategy underpinning that moves the Certainty Premium: the proposition that execution certainty, measured by financing reliability, regulatory clearance probability, and structural tax efficiency, can legitimately outweigh a higher headline price when a board discharges its Revlon duties.

II. Fiduciary Duties and the Execution Gap

Under Revlon, a board’s duty shifts from long-term stewardship to securing the best available transaction for shareholders once a change of control is inevitable. That duty does not require mechanical acceptance of the highest nominal offer; it requires the board to act reasonably in the service of shareholder value, which encompasses a realistic assessment of whether an offer will actually close.

The WBD Board’s Schedule 14D-9 made this case explicitly. Paramount, with a market capitalisation of approximately $14 billion, sought to finance an acquisition requiring $94.65 billion, producing pro-forma gross debt of $87 billion and a leverage ratio of approximately 7x EBITDA. The Board characterised Paramount’s credit profile as presenting a heightened risk of failure to close. Netflix, by contrast, offered an investment-grade balance sheet and projected approximately $12 billion in free cash flow for 2026. In Lyondell Chemical Co v Ryan, the Delaware Supreme Court affirmed that boards have significant discretion in assessing the range of reasonable responses to a takeover. A board that genuinely concludes a lower-priced offer carries materially greater certainty of closing can prefer it, provided it does not act in bad faith or with gross negligence. Supported by independent financial analysis, the WBD Board’s position appears to satisfy that standard.

1. Revlon, Inc v MacAndrews & Forbes Holdings, Inc 506 A.2d 173 (Del Ch 1986).

2. Netflix, ‘Netflix and Warner Bros Discovery Amend Agreement to All-Cash Transaction’ (SEC Schedule 8-K, 20 January 2026).

3. Warner Bros Discovery, ‘Board of Directors Unanimously Recommends Shareholders Reject Amended Paramount Tender Offer’ (SEC Schedule 14D-9, 7 January 2026).

4. Lyondell Chemical Co v Ryan 970 A.2d 235 (Del 2009).

Paramount also deployed a personal guarantee from Larry Ellison, backing $40.4 billion of equity financing, a departure from conventional leveraged buyout structures. Delaware boards assessing financing certainty must scrutinise not merely the nominal wealth of a guarantor but the practical enforceability and liquidity of the commitment. A committed investment-grade credit facility arguably offers greater operational certainty than a personal guarantee, however generous. Whether Ellison’s guarantee met the Delaware standard on its specific terms was a live question the Board was entitled to examine carefully, and its scepticism was legally defensible until Paramount provided further assurances.

III. Structural Engineering: The Reverse Morris Trust

Beyond financing risk, the WBD Board’s preference for Netflix rested on tax and regulatory architecture. WBD was pursuing a Reverse Morris Trust (RMT) precursor structure, designed to isolate its streaming and studio assets from the declining linear cable portfolio via a tax-free spinoff of Discovery Global under section 355 of the Internal Revenue Code. Paramount’s whole-company bid cut across this architecture: acquiring WBD as an entirety risked triggering gain recognition under section 355(e) if the acquisition were treated as part of a plan preceding the distribution, potentially generating significant tax leakage that undermined total deal value.

The RMT structure also carried a regulatory advantage. Because Netflix was acquiring only the streaming and studio assets, excluding cable channels, the transaction presented a narrower market overlap than Paramount’s whole-company bid, making it inherently less susceptible to competition authority challenge. Tax structuring and antitrust profile were, in this deal, deliberately integrated design choices.

IV. The Regulatory Dimension

The WBD contest illustrated the expanding role of international regulators in transactions governed by Delaware fiduciary law but operating in a global market. On 27 January 2026, more than a dozen UK politicians and former policymakers, including three former Culture Secretaries, wrote to the Competition and Markets Authority calling for a full review of the Netflix bid, warning it would cement an already dominant player and risk a substantial lessening of competition. EU competition authorities prepared parallel examinations of both bids concurrently. This convergence of multiple jurisdictions underscores a structural reality: satisfying Delaware fiduciary standards is necessary, but not sufficient, to close a large media transaction. A board that presents regulatory clearance as a routine closing condition rather than a material variable affecting a bid’s certainty may struggle to defend that characterisation in contested Revlon proceedings.

V. Advisory Landscape and the Court of Chancery

5. Sloan Speck, ‘Where’s Tax Law in the Netflix-Warner Deal?’ TaxProf Blog (6 December 2025) https://taxprof.typepad.com accessed 1 March 2026.

6. Internal Revenue Code (US), s 355(e).

7. ‘UK politicians call for competition review of Netflix bid for Warner Bros’ Financial Times (27 January 2026).

Netflix retained Skadden, Arps, Slate, Meagher & Flom, while WBD engaged Wachtell, Lipton, Rosen & Katz and Debevoise & Plimpton,  the latter having structured the 2022 Discovery-WarnerMedia merger. Paramount retained Cravath, Swaine & Moore and Latham & Watkins, and on 12 January 2026 filed suit in the Delaware Court of Chancery alleging a breach of the Board’s duty of disclosure in connection with the Discovery Global spin-off valuation. The Court declined to expedite Paramount’s proceedings on 15 January 2026, finding no cognisable irreparable harm, but granted Netflix’s own request for expedition. The divergent treatment was significant: a hostile bidder cannot use disclosure-based litigation as a tactical tool to slow a rival deal without demonstrating non-compensable harm arising directly from the alleged omission.

VI. Implications for Practice

For counsel advising target boards, the case reinforces that Revlon analysis is now genuinely multidimensional. A Schedule 14D-9 that limits its comparison to headline price risks appearing superficial in litigation. Boards should document execution risk analysis, financing certainty, regulatory clearance probability, and structural tax leakage, with the same rigour as the fairness opinion. For deal structuring lawyers, the Netflix bid exemplifies a broader trend: tax structuring, regulatory design, and fiduciary compliance are increasingly integrated disciplines in large M&A. For litigators, the Court’s differential treatment of the two expedited applications confirms that tactical deployment of Delaware litigation requires identification of genuine, non-compensable harm, not merely competitive disadvantage.

VII. Conclusion: The Limits of the Certainty Premium

The Certainty Premium is a legally defensible but conditional concept. Where execution risk is genuine, documented, and independent, Delaware courts are likely to respect a board’s preference for a lower-priced but more certain offer. Where those grounds are addressed and neutralised by a persistent bidder, the board must update its analysis. The WBD Board ultimately did both, and its continuity of good-faith process may prove to be the case’s most durable legacy.

The Netflix deal unravelled in February 2026 under a sustained and targeted Paramount campaign. On 10 February 2026, Paramount amended its offer to include a ticking fee of $0.25 per share per quarter for any delay beyond 31 December 2026 and

8. Victoria Basham, ‘Skadden, Wachtell, Debevoise in for Netflix’s $82bn Warner Bros deal’ The Global Legal Post (5 December 2025).

9. Paramount Skydance Corp v Zaslav et al (Del Ch, 15 January 2026).

separately agreed to absorb WBD’s $2.8 billion Netflix termination fee. These amendments directly addressed the Board’s stated concerns: regulatory delay risk and the financial cost of switching deals mid-process.

On 18 February 2026, WBD set 20 March 2026 as the date of the special shareholder meeting to vote on the Netflix merger and disclosed that Netflix had granted a limited waiver permitting seven days of negotiations with Paramount. The Board maintained its Netflix recommendation but engaged on Paramount’s best and final offer. On 26 February 2026, following Paramount’s revised $31 per share offer, the WBD Board formally determined that Paramount’s proposal constituted a superior proposal under the contractual terms of the Netflix merger agreement. Netflix declined to raise its bid, stating that at the price required to match, the deal was no longer financially attractive.¹³

WBD and Paramount executed a binding merger agreement at $31 per share, approximately $110 billion on an enterprise value basis. Paramount paid Netflix the $2.8 billion termination fee. The transaction is subject to regulatory clearances and a shareholder vote, with Democrats in Congress publicly opposing the merger on competition grounds. The denouement confirms the article’s central thesis: the Certainty Premium is not a device for permanently resisting a higher offer, but a framework for requiring a rival bidder to price and contractually address the risks it creates. Once Paramount did so, the Board’s fiduciary calculus necessarily shifted, and that responsiveness is itself a feature of sound Delaware process, not a repudiation of it.

Bibliography

Primary Sources

Netflix, ‘Netflix and Warner Bros Discovery Amend Agreement to All-Cash Transaction’ (SEC Schedule 8-K, 20 January 2026).

Warner Bros Discovery, ‘Board of Directors Unanimously Recommends Shareholders Reject Amended Paramount Tender Offer’ (SEC Schedule 14D-9, 7 January 2026).

Warner Bros Discovery, ‘Warner Bros Discovery Sets Special Meeting Date of March 20, 2026’ (WBD Press Release, 18 February 2026) https://ir.corporate.discovery.com accessed 1 March 2026.

10. ‘Warner Bros Discovery Agrees to Engage With Paramount in Sales Talks’ Variety (18 February 2026) https://variety.com accessed 1 March 2026.

11. Warner Bros Discovery, ‘Warner Bros Discovery Sets Special Meeting Date of March 20, 2026’ (WBD Press Release, 18 February 2026) https://ir.corporate.discovery.com accessed 1 March 2026.

12. ‘Warner Bros Discovery Board declares Paramount Skydance offer superior to Netflix deal’ NBC News (26 February 2026) https://www.nbcnews.com/business/media/warner-bros-discovery-says-paramounts-offer-superior-netflix-deal-rcna260861 accessed 1 March 2026.

13. Statement of Ted Sarandos and Greg Peters, quoted in ‘Netflix won’t increase its offer for Warner Bros, ceding bidding war to Paramount’ NBC News (26 February 2026) https://www.nbcnews.com accessed 1 March 2026.

14. ‘Warner Bros Discovery signs merger agreement with Paramount Skydance’ NBC News (27 February 2026) https://www.nbcnews.com/business/media/warner-bros-discovery-signs-merger-agreement-paramount-skydance-rcna261035 accessed 1 March 2026.

Paramount Skydance Corp v Zaslav et al (Del Ch, 15 January 2026).

Revlon, Inc v MacAndrews & Forbes Holdings, Inc 506 A.2d 173 (Del Ch 1986).

Lyondell Chemical Co v Ryan 970 A.2d 235 (Del 2009).Internal Revenue Code (US), s 355(e).

Secondary Sources

‘Warner Bros Discovery signs merger agreement with Paramount Skydance’ NBC News (27 February 2026) https://www.nbcnews.com accessed 1 March 2026.

‘Warner Bros Discovery Board declares Paramount Skydance offer superior to Netflix deal’ NBC News (26 February 2026) https://www.nbcnews.com accessed 1 March 2026.

‘Warner Bros Discovery Agrees to Engage With Paramount in Sales Talks’ Variety (18 February 2026) https://variety.com accessed 1 March 2026.

‘UK politicians call for competition review of Netflix bid for Warner Bros’ Financial Times (27 January 2026).

Victoria Basham, ‘Skadden, Wachtell, Debevoise in for Netflix’s $82bn Warner Bros deal’ The Global Legal Post (5 December 2025).

Sloan Speck, ‘Where’s Tax Law in the Netflix-Warner Deal?’ TaxProf Blog (6 December 2025) https://taxprof.typepad.com accessed 1 March 2026.

Wikipedia, ‘Proposed acquisition of Warner Bros Discovery’ https://en.wikipedia.org/wiki/Proposed_acquisition_of_Warner_Bros._Discovery accessed 1 March 2026.