Why Lionsgate Stock Crushed it on Thursday

Key Points

• One of the biggest companies in its industry is apparently the subject of a coming buyout offer.

• Investors were sniffing around for other entertainment stocks that might attract similar interest.

• 10 stocks we like better than Lionsgate Studios ›

On news that an entertainment sector giant might be making an attempt to buy a large peer, investors took an interest in several industry stocks on Thursday. One of these was Lionsgate Studios (NYSE: LION), whose share price surged by almost 16%, surely on hopes that it too might be approached by suitors. The stock's advance was much more impressive than the S&P 500 index's 0.9% increase.

Hollywood heat

The talk of Hollywood that day was the apparent bid being crafted by Paramount Skydance in a try at acquiring the aforementioned peer, Warner Bros Discovery.

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Image source: Getty Images.

In a story that was broken by The Wall Street Journal, apparently the former company is assembling an offer to purchase the entirety of the latter in a mostly cash deal. That would be quite a swallow in both financial terms, as Warner's market cap is currently just north of $40 billion, and operationally. After all, Warner is a long-standing pillar of the entertainment business that holds numerous assets in different types of media (film, TV, streaming video, etc.).

On that news, which was widely disseminated in both the entertainment press and general-interest media outlets, Warner's stock zoomed nearly 29% higher on Thursday.

Entertainment assets arms race?

Why couldn't the smaller, more focused Lionsgate attract similar attention from potential buyers? It's easy to imagine many investors thinking in this direction, as big-ticket acquisitions can have the knock-on effect of inspiring other deals. Lionsgate is not only smaller, but it would surely be cheaper to purchase, as its market cap currently stands at a shade over $2.2 billion.

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