Why Paramount Skydance Stock Crushed it Today
Key Points
The entertainment giant appears fully prepared for a bidding war for Warner Bros. Discovery.
It announced an all-cash offer for its peer with an enterprise value of $108 billion.
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On Monday, it was Paramount Skydance's (NASDAQ: PSKY) turn to play a role in a major Hollywood takeover saga. Investors cheered this, rewarding the company with a 9% boost in its stock price that day.
A $108 billion play
That morning, Paramount Skydance announced it had submitted a bid to acquire fellow entertainment company Warner Bros Discovery. The all-cash offer boils down to $30 per Warner Bros discovery share, and it targets the entirety of the company rather than a large chunk of it.
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Last Friday, video streaming giant Netflix offered a mix of cash and stock amounting to $27.75 per share of the target company. This bid is limited to Warner Bros' streaming and studio assets only. It excludes the company's legacy cable business, including the Discovery Channel and CNN, which is planned to be spun off into a separate company.
In its announcement, Paramount Skydance said its bid for the full swallow of Warner Bros has an enterprise value of over $108 billion. It contrasted this with Netflix's offer, which is worth under $83 billion.
Paramount Skydance quoted CEO David Ellison as saying that "WBD shareholders deserve an opportunity to consider our superior all-cash offer for their shares in the entire company."
He added that his team's bid "provides superior value, and a more certain and quicker path to completion."
That same day, Warner Bros. acknowledged it had formally received Paramount Skydance's offer. It said it would advise its shareholders of its opinion within 10 business days.
Big money, big ambitions
It wasn't surprising that Paramount Skydance launched a competitive bid for Warner Bros. The company's interest in purchasing its peer was the subject of intense speculation in the entertainment industry.
Paramount Skydance has considerable financial firepower -- its bid is partially backed by Ellison's family, whose patriarch is Oracle co-founder, executive chairman, and CTO Larry Ellison -- and its offer is indeed compelling. This takeover story is about to get a lot hotter, and looks very likely to lift Warner Bros's stock price.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix, Oracle, and Warner Bros. Discovery. The Motley Fool has a disclosure policy.
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