Warner Bros. Wants to Take the Netflix Deal—and It Calls Paramount’s Offer ‘Illusory’

The biggest entertainment deal in history promises more drama.

The latest: Warner Bros. Discovery (WBD) on Wednesday published a letter criticizing Paramount Skydance’s (PSKY) offer to acquire the company, saying its all-cash bid—which followed an agreement by Warner Bros. to merge with Netflix (NFLX)—came with “an untenable degree of risk” and urging shareholders to reject Paramount’s “illusory” all-cash deal.

The response from Warner to Paramount’s hostile takeover offer last week was to be expected, and likely means shareholders of all three companies will be in for a ride until a deal closes. Paramount’s stock was down about 4%, while Netflix’s rose more than 1%. Warner Bros.’ shares were off almost 2%. The volatility likely won’t stop after a deal is nailed down, as the companies that do proceed would likely undergo a long regulatory review.

Warner Bros. in its letter said Paramount’s tender offer is “inferior” to the Netflix merger. The company said that Paramount “consistently misled” shareholders that its proposed deal came with a “full backstop” from the Ellison family. Between that and the debt levels implied by Paramount’s proposed deal comes with “an untenable degree of risk and potential downside,” the letter said.

Paramount has said that its $30-per-share cash bid was not its “best and final” bid, indicating that the company could top up its offer. The company on Wednesday said it wasn’t going to back down, reiterating that its deal was “superior” and would get timely regulatory approval because it “would enhance competition in the creative industries rather than entrench a dominant streaming monopoly.”

The saga to buy Warner Bros. will continue after a deal is pinned down as regulators get their turn to review terms and decide whether it runs amok of anti-trust laws. Tim Wu, a law professor, in a New York Times essay said both plans “are illegal.”

“The message to Warner Bros. Discovery should be: If you must sell, maybe try finding a buyer who is not a direct competitor,” he wrote.

While both deals raise antitrust issues, Paramount’s is “more easily defensible,” according to Jennifer Rie, Bloomberg Intelligence Senior Litigation Analyst in a podcast interview with Bloomberg earlier this week. She also said the Justice Department, rather than the Federal Trade Commission, would likely be involved.

Warner Bros. said that its board of directors doesn’t believe there’s a substantial difference in regulatory risk between the two deals—countering Paramount CEO David Ellison’s argument that its deal would more easily pass regulatory muster.

Netflix co-CEO Greg Peters in an interview with CNBC on Wednesday appeared optimistic, saying that its deal “doesn’t hurt creators in any way, and we’re already engaged with competition authorities, including DOJ and E.U. Commission, to explain that to them.”

This article has been updated since it was first published to incorporate fresh market data and Paramount’s response to Warner Bros.