Last week, shares of Warner Bros. Discovery (NASDAQ:WBD) rallied amid a Wall Street Journal report that Paramount Skydance (NASDAQ:PSKY) was readying a majority cash bid for the media group.
According to the Journal, the bid would be backed by the Ellison family, which includes Oracle (ORCL) Chairman and Founder Larry Ellison. Paramount Skydance is run by Larry Ellison’s son, David Ellison.
The Journal also noted that Paramount Skydance hoped to avoid a potential bidding war for the company, citing Apple (AAPL) and Amazon (AMZN) as possible contenders.
We asked Seeking Alpha analysts Chris DeMuth Jr., Investing Group Leader for Sifting the World; Max Greve; Louis Gerard; and Long Player which company they thought would be the best fit for WBD.
Chris DeMuth Jr.: There are several superior alternatives to Warner Bros. Discovery’s (NASDAQ:WBD) current restructuring plans to split next year. Amazon (AMZN) or Apple (AAPL) could buy them. But Paramount Skydance (NASDAQ:PSKY) would be the best fit for a strategic buyer. They could pay low-mid $20s and still make the deal work.
The Ellison family controls PSKY and just increased their net worth by ~$100 billion in one day on Oracle’s (ORCL) strong quarter for the biggest one-day investment gain in history. That gives them virtually limitless flexibility in what they do with PSKY. The company’s entire market cap is a fifth of their recent ORCL gains!
They will probably make a cash bid for WBD that the company should take. Such a deal reduces major legacy movie studios from five to four, so it would get an extended DOJ review. Ultimately, the Trump DOJ should clear it, and probably would. Liz Warren will continue to complain about the potential deal, and will continue to be ignored.
The most interesting thing about it is that PSKY is in talks to buy The Free Press and put Bari Weiss in a leadership role at CBS. If PSKY buys WBD, Weiss could be put in charge of CNN.
Max Greve: We simply can’t ignore the regulatory component here: the Trump administration would probably prefer to see Ellison’s Paramount (PSKY) acquire Warner (WBD) over any other bidder. The synergies there are reasonable, they share the March Madness broadcast, and the combined company would house both superheroes and children’s fare on the movie side.
Comcast (CMCSA) would face more regulatory pushback than anyone. The dark horse might be Fox (FOX) since they don’t currently have a movie studio and are politically aligned with the current administration, but there’s no indication Murdoch wants back into the movie business he sold out of five years ago.
I am somewhat skeptical of a tech bidding war. Neither Amazon (AMZN) nor Apple (AAPL) has so far shown any inclination to take on the burden of declining cable networks. Alphabet (GOOG) (GOOGL) is already enmeshed in a major antitrust trial; pairing YouTube with DC/HBO would only add to the scrutiny.
Louis Gerard: I believe that the most intriguing and probably best fit for WBD would be the newly formed Paramount Skydance (PSKY), which now has deep pockets to pursue aggressive deals such as this one. Amazon (AMZN) or Apple (AAPL) could pursue WBD, but I see the combined library of movies and shows created through a Paramount-WBD merger as the most accretive. It could certainly make a run at Netflix (NFLX), even if the merger takes longer than expected.
The financials aren’t disclosed yet, but the combination of two legacy media companies could finally offer some scale relative to the efforts of the large tech companies. Furthermore, this would differ from the recent WBD strategy to spin off its cable business and actually use it as “feedstock” for the streaming platform with valuable assets such as CNN.
The timing could be perfect, as shareholders are doubting yet another change in strategy on the WBD side. The Trump administration could also be in favor of a merger if both CBS and CNN remain politically neutral.
Long Player: Probably the best fit for Warner Bros. Discovery is the currently rumored Paramount. But no matter what happens, you have unusual talent on the WBD board.
John Malone, for example, represents a few major shareholders and holds a PhD in Operations Research That kind of talent can make a big difference when it comes to getting the right people into the right places post-merger.
WBD has more than a few big shareholders represented on the board. That makes a huge difference in negotiating an acceptable bid that is likely to succeed.