Why Warner Bros Discovery Stock Blasted Higher Today

Key Points

• There was buzz that a big peer is preparing a buyout offer.

• This wouldn't come cheap; the company currently sports a market cap of over $40 billion.

• 10 stocks we like better than Warner Bros. Discovery ›

An apparent takeover attempt being concocted by a peer was the main factor behind Warner Bros Discovery (NASDAQ: WBD) stock's precipitous rise on Thursday. On a media report that the storied entertainment company is in play, investors piled into the stock in anticipation of a generous buyout offer. Warner soared almost 29% higher in price that trading session.

Hollywood megadeal in the works?

That afternoon, The Wall Street Journal published a story stating that Paramount Skydance is making preparations to submit a majority cash bid for Warner. This effort is apparently backed by the family of Paramount Skydance CEO David Ellison, which includes Oracle co-founder and executive chairman Larry Ellison and film producer Megan Ellison. It wasn't immediately clear which family members might be involved in the bid.

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Image source: Getty Images.

The Journal, citing unnamed "people familiar with the situation," wrote that Paramount Skydance's play will be for the entirety of the sprawling Warner.

The business newspaper added that in preparing a bid, Paramount Skydance hopes to get the jump on big tech and entertainment conglomerates that might want to lay their hands on Warner assets.

If successful, a combination of Paramount Skydance and Warner would be earth-shaking for the entertainment industry. Combined, the two own a dizzying number of familiar entertainment properties, including cable/streaming channel HBO, superhero franchise base DC Studios, and Nickelodeon Movies.

The Journal did not speculate as to how much Paramount Skydance plans to offer for Warner; however, the amount must be substantial. The latter company's market cap stood at over $40 billion after the run-up in the stock following the article's publication.

Neither Paramount Skydance nor Warner has yet officially commented on the report.

Stay tuned for more!

Given David Ellison's successful entry into Paramount Skydance last month, plus the considerable financial firepower he and his team can marshal, I'd say the Journal's report has a lot of credibility. I'd be cautious in approaching Warner's stock now, however, as we have no indication of what the price tag might be.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle and Warner Bros. Discovery. The Motley Fool has a disclosure policy.