Paramount’s letter questions about the Warner Bros. sale. Discovery

Dear Mr. Zaslav: We write on behalf of Paramount Skydance Corporation (“Paramount,” “we,” or “us”) to express our serious concerns about the fairness and adequacy of the bidding process for the potential merger with Warner Bros. Entertainment. Discovery (“WBD” or “you”). It has become increasingly clear, through media reports and elsewhere, that WBD has abandoned the appearance and reality of a fair transaction process, thereby abdicating its duties to shareholders, and embarking on a short-sighted process with a predetermined outcome in favor of a single bidder. We specifically ask and expect that this letter be shared and discussed with the entire WBD Board of Directors.

We have recently seen reports in the American and foreign media that raise serious concerns. German newspaper Handelsblatt recently reported on a meeting said to have taken place in Brussels between Gerhard Zeller, WBD’s head of international business and a direct report to WBD’s CEO, who “arrived with a team of three”, with European Commission Vice President Heina Virkonen, to discuss WBD’s potential merger prospects. In that conversation, the article stated that “concerns have been raised that the Ellison family’s planned acquisition of Warner Bros. Discovery could lead to excessive media focus,” and that the EU Commission would consider intervening in a potential merger with Paramount for that reason. The article quotes “sources close” to Zeller as saying, “The talks with the Commission were important because both Warner and the European Union wanted to maintain media diversity.” The implications of such a meeting, if it occurred, are clear and indicate tacit resistance, if not active sabotage, of the Paramount offer.

While this report is troubling in and of itself, it is not an isolated report regarding WBD’s alleged resistance to the merger with Paramount. Several US media outlets reported on WBD management’s enthusiasm for the deal with Netflix, and on management’s statements that the deal between WBD and Netflix would be a “knockout”, while also casting Paramount in a negative light. Additional reporting since the revised bids were submitted on December 1 has indicated that “WBD’s board has already warmed up” to the deal with Netflix due to “chemistry between” WBD’s management and Netflix’s management. We have come to you first to inquire whether these reports are accurate, and to engage in a productive discussion with you about any actual or perceived issues they may reflect.

Moreover, these media reports reflect similar signals we have been hearing throughout this process, despite what we considered to be productive conversations we had with World Bank leadership. Paramount has a credible basis to believe that the sale process was marred by management conflicts, including some members of management having potential vested interests in post-transaction roles and compensation as a result of economic incentives included in recent adjustments to employment arrangements. These concerns are amplified by indications of managers’ bias and devotion to others whose interests may not be aligned with those of shareholders, and the fact that alternatives involving only some of WBD’s assets are prioritized despite increased regulatory risk and the potential to deprive shareholders of consideration of the full value of WBD’s enterprise.

Furthermore, as you know, Paramount has agreed to certain standstill arrangements in exchange for the opportunity to participate in a truly competitive and unbiased bidding process. Paramount did not negotiate with WBD to promote a biased or unfair process, whether intentionally or unintentionally. We believe that all parties in this process must have a shared desire for an unquestionable transaction process, from which they will mutually benefit. As we assume you agree, even discounting the accuracy of any media reports, the mere appearance of a flawed process jeopardizes any potential transaction that may result and may undermine the potential value maximization for WBD shareholders from any potential transaction.

In light of our serious concerns regarding the integrity of WBD’s operation, 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 spin-off of all or part of the Company. If not, we strongly encourage you to empower this special committee of directors without any potential appearance of bias or bias 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 unaccountability of the transaction process and to maximize the value of any outcome the World Development Bank decides to achieve. In engaging with WBD throughout this process, we have been encouraged by the tremendous potential offered by our range of entities. We are confident that Paramount’s offering will provide maximum value to WBD shareholders and look forward to the opportunity to continue to engage productively with you in this process. But at this point we must insist on safeguards and steps taken to ensure a truly fair and independent process, for the benefit of Paramount and for the benefit of WBD shareholders.