By Toby Walker

Associate Solicitor

18 March 2026

Article Blog

With Netflix pulling out of the proposed purchase of Warner Bros. Discovery (“Warner Bros”), the doors may have been now been opened for Paramount Skydance (“Paramount”) to acquire Warner Bros in a “megamerger” reportedly worth up to $111 billion.

Such prospective “megamerger” will inevitably capture headlines – such as the potential impact on Hollywood film production. However, there are many elements that should be explored by corporate lawyers and business owners with a future exit in mind (no matter what the proposed consideration is) alike.

Termination Fees

In January 2026, news of Netflix making an offer for Warner Bros was making headline – as part of such reports, it was highlighted that Netflix had, as part of the overall deal, offered to pay a $2.8 billion “break-up fee” if it walked away from the deal. Such termination fees are designed to compensate one party, in this case Warner Bros, where the counterparty exits the transaction in specified circumstances. For such reasons, a break fee clause should be tightly drafted – otherwise the theoretical fee can quickly crystalise into a real liability.

The lesson is not simply that break fees can be large, but that their enforceability turns on the detail. In practice, obligations are often intertwined with, for example, exclusivity, financing commitments, and delivery milestones. Where a party exits, liability will depend on how clearly the contract defines:

• The circumstances in which termination is permitted;
• Whether payment is triggered automatically or subject to fault or failure to use reasonable endeavours; and
• How the clause interacts with broader risk allocation provisions (e.g. regulatory approval, material adverse change and force majeure).

In the Netflix / Warner Bros context, the size of the payment reflects a contract that effectively priced in the cost of withdrawal at the outset. From a drafting perspective, that is both the strength and the risk of such provisions. For the recipient, it provides certainty and a clean remedy. For the paying party, it creates a potentially significant fixed liability, regardless of the underlying commercial rationale for exiting the deal.

There is also an important distinction between a genuine pre-estimate of loss and a provision that may be characterised as a penalty. Under English law, a clause will generally be enforceable if it protects a legitimate commercial interest and is not out of all proportion to that interest. In deals involving billions in projected revenue, a multi-billion-dollar payment may well be justifiable – but only if it is properly framed. Accordingly, termination payments must, alongside the considerations given above, be:

• Precisely triggered, with minimal scope for dispute; and
• Commercially justifiable, to withstand scrutiny.

Exclusivity Provisions

Initial transactional documents will often include provisions restricting the target’s ability to engage with competing prospective buyers once a deal is agreed. Such clause would often be justified on the buyer needing the security so that it can invest time and resources into the transaction without being used as a stalking horse.

With regards to the “megamerger” and now that Paramount’s offer is treated as the “winning bid”, it is likely that some form of exclusivity has been agreed. Whilst such period isn’t public knowledge, the parties will have, most likely, taken other key factors effecting the deal into account (e.g. anticipated timetable for regulatory and / or shareholder approval).

If the period is too short, a buyer may be exposed to the risk of being outbid after it has incurred significant costs and time on due diligence, financing and, if required, regulatory preparation. However, an overly long exclusivity period may unduly restrict the target’s ability to respond to changing market conditions or superior proposals, creating tension with target’s directors’ duties and potentially depressing value. The sweet spot is, therefore, a carefully calibrated timeframe with, if necessary, conditional milestones or break clauses – thus. providing the buyer with sufficient protection to progress the transaction while preserving a degree of flexibility for the sellers.

Conditionality

This “megamerger” will no doubt proceed with various conditions. One that will be applicable to many deals, no matter the size of consideration, is regulatory approval.

In the context of Paramount / Warner Bros and given the scale of the parties and their influence over content and distribution, there is a clear risk of increased market concentration (which could, amongst other matters, potentially lead to higher consumer prices). Therefore, the “megamerger” is likely to require clearance from US authorities, as well as potentially other jurisdictions – which is far from guaranteed. Taylor Walton will often be involved with deals that require regulatory approval, for example, from the FCA.

To address this, parties will need to negotiate the extent of their respective obligations to secure approval – which often falls on the buyer being required to take all necessary or reasonable steps to obtain clearance.

Financing is another item often covered by the conditions. In leveraged transactions, the seller will seek certainty that the transaction will complete, and the funds will be available at completion whereas the lender will typically require sight of an executed agreement (which has been pre-approved by them). This interplay must be carefully managed to avoid gaps in execution risk.

The proposed Paramount / Warner Bros “megamerger” highlights a fundamental truth in corporate transactions: deal certainty is engineered, not assumed.

Break fees, exclusivity provisions and conditionality are not mere boilerplate—they are some of the many mechanisms through which risk is allocated and managed. For businesses considering an exit, value is not determined solely by headline price, but by the strength and precision of the underlying legal framework.

Disclaimer: General Information Provided Only

Please note that the contents of this article are intended solely for general information purposes and should not be considered as legal advice. We cannot be held responsible for any loss resulting from actions or inactions taken based on this article.