Paramount Letter Questions Warner Bros. Discovery Sales Process

Dear Mr. Zaslav: We are writing on behalf of Paramount Skydance Corporation (“Paramount,” “we,” or “us”) to express our serious concerns about the fairness and appropriateness of the bidding process for its potential merger with Warner Bros. Discovery (“WBD” or “you”). It has become increasingly clear, including through media reports, that WBD appears to have abandoned the appearance and reality of a fair transaction process, thereby abdicating its obligations to shareholders and embarking on a short-sighted process that results in an ex-ante outcome favorable to a single bidder. We specifically request and hope that this letter will be shared and discussed by the entire WBD Board of Directors.

Recently, I have seen some deeply concerning reports in the U.S. and foreign media. German newspaper Handelsblatt recently reported that a meeting was reportedly held in Brussels between Gerhard Zieller, WBD’s head of international operations and reporting directly to WBD’s CEO, and European Commission Vice-President Henna Birkkunen, who “arrived in a three-person team” to discuss a possible WBD merger. In that conversation, the article said, “concerns were raised that the Ellison family’s proposed acquisition of Warner Bros. Discovery could lead to excessive media concentration,” and for this reason the European Commission would consider intervening in the potential merger with Paramount. The article quotes a “person close to” Seiler as saying, “The discussions with the European Commission were important because both Warner and the EU wanted to maintain media diversity.” If such a meeting were to take place, the implications would be clear: it would be evidence of tacit resistance to Paramount’s proposal, if not active sabotage.

While this report is alarming in itself, this is not an isolated report on alleged WBD resistance in combination with Paramount. Multiple U.S. media outlets have reported on WBD management’s enthusiasm for a deal with Netflix, and management’s comments that a deal between WBD and Netflix would be a “slam dunk,” and have also commented negatively on Paramount’s bid. Additional reports since the company submitted its revised bid on Dec. 1 indicate that WBD’s “board of directors is fully motivated to pursue a deal with Netflix” due to the “compatibility” between WBD and Netflix’s management teams. We first came to you to ask whether this report was accurate and to have a productive discussion about any real or perceived issues it may reflect.

Additionally, these media reports reflect similar signals we have been hearing throughout this process, despite what we viewed as productive conversations with WBD leaders. Paramount has credible grounds to believe that the sales process is tainted by conflicts with management, including some management’s potential personal interests in post-transaction roles and compensation as a result of economic incentives built into recent employment agreement amendments. These concerns are further amplified by the fact that alternatives involving only specific WBD assets are being prioritized, despite signs of director bias and favoritism to others whose interests may not align with those of shareholders, as well as increased regulatory risk and the potential to deprive shareholders of consideration of WBD’s overall corporate value.

Additionally, as you know, Paramount agreed to certain standstill agreements in exchange for the opportunity to participate in a truly competitive and fair bidding process. Paramount did not negotiate with WBD to facilitate a biased and unfair process, whether intentionally or unintentionally. We believe that all parties involved in this process should have a common desire for an impeccable transaction process, which is mutually beneficial. As we all agree, even without the accuracy of media reports, the mere appearance of a flaw in the process could jeopardize any resulting transaction and potentially undermine the maximization of value to WBD stockholders from future transactions.

Given our significant concerns regarding the integrity of WBD’s processes, we seek confirmation as to whether WBD has appointed an independent special committee of disinterested members of its board of directors to consider potential transaction opportunities and make a final decision regarding the sale or divestiture of all or part of the company. If this is not the case, we strongly recommend empowering a special committee comprised of directors who do not appear biased or patronizing towards others whose interests may differ from those of shareholders. This appears to be an important step at this stage to ensure the fairness and blamelessness of the transaction process and to maximize the value of the outcome that WBD decides to pursue. Working with WBD throughout this process, we have been encouraged by the enormous potential that comes from the combination of our entities. We continue to believe that Paramount’s proposal provides the greatest value to WBD stockholders and look forward to the opportunity to continue to engage productively with you in this process. But at this time, we must ensure that a truly fair and independent process is conducted, and insist on the measures taken, both in the interests of Paramount and in the interests of WBD shareholders.