Paramount's $110B Warner Bros Deal: Debt and Sovereign Fund Backing

Paramount's acquisition of Warner Bros Discovery (WBD), a company seven times its size, for an estimated $110 billion, represents a significant shift in how major corporate takeovers can occur. This deal, orchestrated by David Ellison, involved complex financial maneuvers, substantial debt, and the backing of immense personal and sovereign wealth.

The Initial Control of Paramount

Paramount, valued at approximately $11 billion at the time of the deal, was significantly smaller than WBD, which was worth $77.71 billion. The foundation for this acquisition was laid when David Ellison's group gained control of Paramount.

Many companies, including Paramount, operate with two classes of shares: Class A and Class B. Typically, one class carries the majority of voting rights. For Paramount, Class A shares held this power. This structure allowed National Amusements, owned by the Redstone family, to control 77% of Paramount's votes while owning only 10% of the company.

David Ellison, son of Oracle co-founder Larry Ellison, leveraged this structure. By acquiring National Amusements for $2.4 billion (not Paramount's full $11 billion valuation), his group gained control of Paramount by 2025. Larry Ellison, briefly the richest man on Earth and currently ranked #8, played a crucial role in the subsequent financing.

The Battle for Warner Bros Discovery

The acquisition of Warner Bros Discovery was a far more complex undertaking, requiring significant capital and facing considerable opposition.

Initial Bids and Rejections

On September 11, 2025, the Wall Street Journal reported Paramount's intent to buy WBD, causing WBD shares to jump 30% to $40 billion, while Paramount was valued at $19 billion. Paramount made several offers, all of which were rejected by the WBD board:

• First offer: $19 per share, a mix of cash and Paramount shares.
• Second offer: $22 per share, plus a $2 billion fee if regulators blocked the deal.
• Third offer: $23.50 per share.

Netflix's Intervention

Following these rejections, WBD's board put the company up for sale, leading to an auction. Netflix emerged as the initial winner, offering to buy WBD's studios, HBO, and HBO Max for $27.75 per share, totaling $82.7 billion including debt. This was a traditional cash and stock deal from a larger company with substantial revenue, fitting the typical acquisition model.

However, Paramount, being much smaller, could not afford a similar stock-based offer without severely diluting its existing shareholders. Paramount's shares were valued at only $19 billion, dropping to $14 billion by early 2026. A stock deal would mean WBD shareholders would own most of the merged entity. Paramount also had only $3.3 billion in cash and $13 billion in debt.

Paramount's Unconventional Strategy

To overcome these limitations and acquire WBD, David Ellison and Paramount employed a "hostile tender offer" and two "secret weapons."

Hostile Tender Offer and Debt Financing

Paramount decided to bypass the WBD board and appeal directly to shareholders with a hostile tender offer. To fund this, Paramount secured $54 billion in loans from Bank of America, Citi, and Apollo.

Secret Weapon 1: Ellison Wealth

A significant portion of the funding came from the Ellison family's wealth. Larry Ellison initially backed the deal, but the WBD board expressed skepticism about the "full backstop" claim, noting that Larry Ellison's wealth was held in a revocable trust. A revocable trust can be altered or emptied at any time, posing a risk to deal funding.

To address this, Larry Ellison provided an "irrevocable personal guarantee of $40.4 billion of the equity financing" and agreed not to revoke the Ellison family trust. Furthermore, the Ellison family trust committed up to $46.72 billion to buy new, non-voting Class B Paramount shares at $16.02 each, a 60% premium to the market price. This allowed the Ellisons to inject capital without diluting their voting control.

Secret Weapon 2: Sovereign Wealth Funds

The commitment for new shares was "up to $46 billion," with $24 billion of that coming from sovereign wealth funds. These included Saudi Arabia's Public Investment Fund (PIF), Abu Dhabi's L'imad fund, the Qatar Investment Authority, and LionTree, a New York investment firm. This trend of sovereign wealth funds participating in major acquisitions is growing, with such funds surpassing $15 trillion in assets by 2026. Notably, these funds would hold zero voting power in the merged entity, ensuring the Ellisons retained control.

Escalating the Bid

Despite the financial backing, the WBD board remained wary, highlighting Paramount's $14 billion market capitalization attempting a $94.65 billion financing deal, nearly seven times its size, which they deemed riskier than Netflix's "conventional structure."

Netflix then switched to an all-cash deal, further pressuring Paramount. In response, Paramount raised its offer to $31 per share and took extraordinary steps to remove WBD's reasons for rejection:

• Paid Netflix's breakup fee: Paramount offered to cover the $2.8 billion breakup fee WBD owed Netflix.
• Increased regulatory blockage fee: Paramount offered $7 billion if regulators blocked the deal.
• Added a "ticking fee": The price would increase by $0.25 per share for every quarter the deal was delayed.

These aggressive moves swayed the WBD board, which deemed Paramount's offer "superior" to Netflix's. Netflix's co-CEO Ted Sarandos called Paramount's bid "unusual" and "irrational."

The Merger and Its Aftermath

On February 27, 2026, Paramount and Warner Bros Discovery signed a merger agreement for $31 per share in cash, totaling $80.9 billion for the shares. This became the largest all-cash deal in corporate history. The merged company was named Skydance.

The Irony of Debt

The total value of the deal was $110 billion, including WBD's existing debt. This is where the irony lies:

• WBD's existing debt: WBD carried $29 billion in debt from previous mergers, including AT&T's 2018 acquisition of Time Warner for $85.4 billion and the subsequent spin-off of WarnerMedia into Discovery for $43 billion.
• Paramount's debt: Paramount had $15 billion in debt.
• New debt for acquisition: Paramount borrowed an additional $52 billion to finance the deal.

This resulted in the new company, Skydance, being burdened with approximately $80 billion in debt, 7.6 times its combined earnings. In essence, Warner Bros, through its existing debt and its contribution to the combined entity, is largely responsible for paying off the debt incurred to acquire it.

Future Outlook for Skydance

The immediate challenge for Skydance's Chairman and CEO David Ellison and co-CEO Ynon Kreiz is to manage this massive debt. They have promised over $6 billion in annual cost savings within three years, primarily from "non-labor sources." However, Netflix's Ted Sarandos predicts cuts exceeding $16 billion, leading to "less production, less people working." Ellison and Kreiz's memo to employees acknowledged that "integrating two companies will bring change, including difficult decisions that affect our workforce," hinting at potential layoffs.

In summary, an "ant" acquired a "giant" not through its own size or cash reserves, but by leveraging external wealth, taking on massive debt, and ultimately, making the acquired company bear the burden of that debt. Warner Bros has a history of being acquired, with AT&T's previous purchase of Time Warner being a catastrophic example that left AT&T with over $170 billion in debt.