Letter from Paramount Questions Warner Bros. Sales Process Discovery

Dear Mr. Zaslav: We are writing to you 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 a possible tie-up with Warner Bros. Discovery (“WBD” or “you”). It has become increasingly clear, through media reports and others, that WBD appears to have abandoned the appearance and reality of a fair transaction process, thereby abdicating its duties to shareholders, and has embarked on a myopic process with a predetermined outcome that favors a single bidder. We specifically request and hope that this letter will 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 reportedly taking place in Brussels between Gerhard Zieler, WBD’s president of international affairs, and a direct report from WBD’s chief executive officer, who “arrived with a team of three,” along with European Commission Vice President Hena Virkkunen, to discuss potential WBD merger prospects. In this conversation, the article reports that “concerns have been raised that the Ellison family’s proposed acquisition of Warner Bros. Discovery could lead to excessive media concentration,” and that the European Commission is reportedly considering intervening in a possible merger with Paramount for this reason. The article quotes “sources close” to Zeiler as saying that “discussions with the Commission were important because Warner and the EU wanted to preserve media diversity.” The implications of such a meeting, should it take place, are clear and indicate tacit resistance, if not active sabotage, of a Paramount offer.

While this report is concerning in its own right, it is not an isolated report regarding WBD’s alleged resistance to an association with Paramount. Several US media outlets reported on WBD management’s enthusiasm for a deal with Netflix and management’s statements that a deal between WBD and Netflix would be a “slam dunk”, while also casting Paramount’s offer in a negative light. Additional reports since the revised bids were submitted on December 1 have indicated that “the WBD board has really warmed up” to a transaction with Netflix due to the “chemistry between” WBD management and Netflix management. We have come to you first to verify whether these reports are accurate and to engage in a productive discussion with you about any real or perceived issues they may reflect.

Additionally, these media reports echo similar indications we have heard throughout this process, despite what we consider to be otherwise productive conversations we have had with WBD leadership. Paramount has credible reason to believe that the sale process was marred by management conflicts, including potential self-interest of certain members of management in post-transaction roles and compensation due to economic incentives embedded in recent changes to employment terms. These concerns are amplified by indications of director bias and accountability to others whose interests may not align with those of shareholders, and by the fact that alternatives involving only certain WBD assets are prioritized despite their increased regulatory risk and their potential to deprive shareholders of consideration of WBD’s entire enterprise value.

Additionally, as you know, Paramount agreed to certain standstill agreements in exchange for the opportunity to participate in a truly competitive and impartial bidding process. Paramount did not bargain for WBD to promote, intentionally or unintentionally, a biased and unfair process. We believe that all parties to this process should share the desire for a flawless transaction process and that they will mutually benefit from it. As we assume you would agree, even ignoring the accuracy of media reports, the mere appearance of a flawed process jeopardizes any potential transaction that may result and may jeopardize the potential maximization of value to WBD shareholders from any potential transaction.

In light of our serious concerns regarding the integrity of WBD’s process, we are seeking confirmation whether WBD has appointed an independent special committee composed of disinterested members of its board of directors to review potential transaction opportunities and make a final decision regarding the sale or dissolution of all or part of the company. Otherwise, we urge you to empower such a special committee composed of directors without the potential appearance of bias or accountability to others whose interests may differ from those of the shareholders. This appears to be an important step at this stage, to ensure the fairness and sanctity of the transaction process and to maximize the value of any outcome WBD decides to pursue. In engaging with WBD throughout this process, we have been encouraged by the enormous potential of a combination of our entities. We remain confident that Paramount’s offer would provide the maximum value to WBD shareholders and we look forward to the opportunity to continue to productively collaborate with you in this process. But at this stage, we must emphasize the assurances and steps taken to ensure that a truly fair and independent process is conducted, both in the interests of Paramount and in the interests of WBD shareholders.