Warner Bros. Discovery stock jumped nearly 29% Thursday upon news that Larry Ellison-backed Paramount was preparing a bid to buy its rival that owns HBO, CNN and the Warner Bros. studio.
The Ellison family and RedBird Capital Partners acquired Paramount last month, and they have signaled that they would take bold steps to rebuild Paramount to its former glory. The Ellison-RedBird team is in final stages of putting together a bid for Warner Bros. Discovery, according to a person familiar with the matter who was not authorized to speak publicly.
The move underscores the ambitions of Larry Ellison, the co-founder of Oracle, who ranks among the richest men in the world, and his 42-year-old son, David, who serves as Paramount’s chairman and chief executive, to build a top-tier entertainment company.
The Wall Street Journal first reported that Paramount’s largely cash bid would be for the entire company, including its movie studio, streaming assets and cable networks. Warner Bros. Discovery is in the process of spinning its cable channels, including TNT, CNN and Cartoon Network, into a separate company, a transaction that Warner Bros. Discovery Chief Executive David Zaslav has said would be complete by April.
A Warner Bros. takeover by Paramount, if consummated, would rapidly accelerate the dramatic transformation of Hollywood. The proposed merger also would solve many of the issues facing the two companies, which have both stumbled in the race to streaming as deep-pocketed tech companies have gobbled up much of their historic turf.
Representatives of Paramount and Warner Bros. Discovery declined to comment.
The proposed bid was a surprise, coming so soon after the Ellison family, through their Skydance Media, acquired Paramount. But Thursday’s surge in Paramount’s stock indicated that investors believe Paramount needs more content, said Laurent Yoon, senior analyst at Bernstein.
“It’s almost a necessary deal in some sense for them to thrive and grow,” Yoon said. “If there’s any player that wants to bulk up, there is no opportunity like this for a very long time. This is it.”
Paramount Skydance shares climbed nearly 16% to close at $17.46 on Thursday.
Warner Bros. Discovery soared 28.9% to $16.17. On Wednesday, the stock had closed at $12.54.
The proposed merger, which is expected to trigger massive layoffs, would pair two of the oldest and most storied film studios and a stable of popular television assets.
“One possibility is that this next step was always embedded in Skydance’s acquisition strategy: to consolidate media assets during a period of industry-wide instability,” MoffettNathanson analyst Robert Fishman said in a report.
HBO has consistently set standards for prestige television, and Paramount’s CBS broadcast network has long entertained huge audiences with NFL football and shows such as “Matlock” and “Survivor.” Both companies have struggling cable channels and news divisions, CNN and CBS News, that could benefit from reinforcements.
Both companies have launched their own streaming services, HBO Max and Paramount+, but they lag far behind industry leaders in subscribers and engagement. Talks were already underway among various media companies to combine their streaming platforms to better compete against Netflix.
A decade ago, Warner Bros. properties — and its stately studio lot in Burbank — were among the most envied in the industry. In 2014, Rupert Murdoch’s Fox made an unsuccessful $80-billion bid for what was then known as Time Warner Inc. But two disastrous mergers — AT&T’s purchase in 2018 followed by Discovery’s takeover three years ago — have led to steep staff cuts and near-constant shifts in strategy.
The Ellison family has been mulling a possible Warner Bros. deal for months, viewing the assets as valuable and mismanaged, said the source familiar with the matter.
Warners’ library includes Harry Potter, Batman, Superman and other DC Comics. HBO has “Game of Thrones” and the acclaimed TV series “The White Lotus.”
Since the Ellisons made their deal for Paramount a year ago, analysts have seen Warner Bros. Discovery as among the most vulnerable.
Paramount may need to bulk up because of the tech company competition, said Naveen Sarma, a U.S. media and telecom analyst at S&P Global Ratings.
“The two combined [would be] a stronger business potentially than either business on a standalone basis,” Sarma said. “This is a recognition that you need scale to be a very successful media company.”
Zaslav’s tenure leading Warner Bros. Discovery has also been widely criticized and led to a steep loss in value.
Still, the Warner film studio has had a strong year at the box office, serving as an affirmation of Zaslav’s decision to ditch AT&T’s plan to focus on releasing movies directly to its streaming service rather than focus on big-screen releases. At the Goldman Sachs Communacopia + Technology Conference in San Francisco on Wednesday, Zaslav touted his company’s start of a turnaround.
It’s unclear whether federal regulators would frown on a merger that would combine two of the original film studios. Years ago, antitrust concerns could have derailed such talks, but the Trump administration has taken a business-friendly approach. The president also has boasted about his friendship with the elder Ellison, whose Oracle software company is seen as a leading contender to buy the hugely popular TikTok app.
What’s more, the arrival of Apple, Netflix and Prime Video has dramatically altered the entertainment landscape and increased the number of TV and movie outlets.
But there would be overlapping businesses. Both firms maintain vibrant TV production studios, cable channels and streaming services.
David Ellison’s Skydance Media struggled for months to win the Federal Communications Commission’s approval of its takeover of Paramount, until the company — which was previously controlled by mogul Shari Redstone — agreed to pay Trump $16 million to resolve his lawsuit over edits to a “60 Minutes” interview of Kamala Harris last fall.
More problematic may be whether Paramount, which has a tattered credit rating, has the financial heft to swallow a company valued at $40 billion, based on Thursday’s trading. To raise money, the Ellisons could sell the fabled Paramount lot, which anchors an area of Hollywood that has undergone a dramatic housing revitalization.
Paramount is much smaller with a $19-billion market capitalization.
“You couldn’t finance this transaction with all debt,” Sarma said. “You’d have to have a substantial component be equity.”
For the past three years, Warner Bros. Discovery has been swimming in debt after paying AT&T a $43-billion dividend to finance its takeover.
Such a heavy debt burden has severely constrained the company, led to massive layoffs and prompted programming cuts, including carrying NBA basketball.
Paramount’s David Ellison, in contrast, has shown a willingness to make big bets, including agreeing to pay $7.7 billion for media rights to UFC’s mixed martial arts events in the U.S. in a seven-year deal with TKO Group Holdings. The company also invested in the construction of a Texas-based production hub for prolific “Yellowstone” creator Taylor Sheridan and agreed to pay $1.5 billion over five years for streaming rights for “South Park,” the Comedy Central cartoon.
Ellison has been in talks to buy journalist Bari Weiss’ Free Press site, reportedly for more than $100 million, in a deal that envisions bringing the high-profile journalist, who has built her profile by providing an alternative to mainstream media outlets, to join CBS News.
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