With its year-long merger finally in the rearview mirror, Paramount Skydance (PSKY) is in the midst of a potential acquisition that could allow it to compete against industry giants like Netflix (NFLX) and Disney (DIS).

Paramount had just recently made overtures to acquire Warner Brothers Discovery (WBD), making an initial majority-cash deal valuing shares at $20. While this was rejected, another bid is reportedly on its way as early as this week.

While Warner Bros. is twice Paramount’s size, an acquisition of this kind may seem like an unusual bet. However, when looked at closely, a merger could have industry-wide implications.

If Paramount, led by its CEO and chairman David Ellison, succeeds at this acquisition, the entertainment industry could witness the creation of another media juggernaut.

Investor Essentials Daily:
Friday News-based Update
Powered by Valens Research

In July 2024, Skydance Media and Paramount Global sent the entertainment industry abuzz by announcing an $8 billion merger. This deal emerged as Paramount’s parent company, National Amusements, sought merger and acquisition opportunities for the media giant.

While the deal was widely expected to close in early 2025, especially after receiving approval from the U.S. Securities and Exchange Commission and the European Commission, the merger faced delays.

Instead of closing in the first half of 2025, the merger only completed in August this year upon the approval of the Federal Communications Commission.

With the merger now in the rearview mirror, David Ellison, chairman and CEO of Paramount Skydance (PSKY) is making moves to acquire another media giant in the form of Warner Bros. Discovery (WBD).

Warner Bros. announced that it plans to split off into two publicly traded companies a few months ago, separating its popular HBO Max streaming service, movie studio, and TV production business from its cable networks.

The Ellison-led Paramount recently made overtures to acquire all of Warner Bros. before its mid-2026 spinoff completes. The initial offer—a majority-cash deal valuing shares at $20—was rejected by Warner Bros. CEO David Zaslav, who reportedly expects upwards of $30 per share in any deal.

While the initial offer was rejected, a new bid is expected to be made as early as this week. Apollo Global Management is reportedly willing to back Paramount in any potential offer through debt financing.

Paramount currently has a market value of roughly $19 billion. Meanwhile, Warner Bros.’ value sits at over $40 billion. 

Aside from its TV and movie studios, Paramount currently owns the CBS broadcast network, cable TV networks like MTV and Comedy Central, Nickelodeon, the Paramount+ streaming service, and exclusive media rights for all of the UFC”s matches in the U.S. as well as some sports-rights deals in leagues like the NFL and college sports.

Should a potential merger push through, Paramount would acquire Warner Bros.’ vast media properties such as HBO Max, Discovery+, its film studio which is behind hits such as “Sinners,” “Superman,” and “A Minecraft Movie,” the on-the-rise DC Comics franchise, and a host of sports-rights TV deals in major leagues like the MLB, the NHL, and even college sports.

Even though Warner Bros. (29.2m),and Paramount (34.5m, Paramount+) lag behind Netflix (67.1m), Hulu (39m), and Disney+ (36.5m) in terms of paid streaming subscribers, a merger between the two would enable Ellison to compete against these industry heavyweights.

Aside from adding an extensive media portfolio to Paramount’s existing properties, Uniform Accounting reveals why Ellison is trying to acquire Warner Bros.

In the past three years, Warner Bros. has been a more profitable business, delivering an average Uniform return on assets (“ROA”) of nearly 20%. Meanwhile, Paramount has lagged behind, delivering an average return of 8% during the same period.

While it remains to be seen whether this merger will pan out, it will definitely have industry-wide implications.

If this deal goes through, Paramount would be well-positioned to be more competitive against its entertainment industry competitors and could become the next entertainment behemoth.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research