Analysts are mostly positive on Paramount Skydance's bid for Warner Bros. Discovery

Alberto E. Rodriguez

Shares of Warner Bros. Discovery (NASDAQ:WBD [https://seekingalpha.com/symbol/WBD]) are up 7.7% ahead of the opening bell on Friday, continuing its rally from Thursday after multiple media reports that David Ellison's Paramount Skydance (NASDAQ:PSKY [https://seekingalpha.com/symbol/PSKY]) is preparing a cash bid, backed by the Ellison family, to take over the entire company.

WORD ON THE STREET

KEYBANC CAPITAL MARKETS: The research firm believes the move is a "clear positive" for Warner Bros. Discovery.

"From our perspective, such a deal would need to be meaningfully better than what WBD thought the post-spin company was worth given synergies that the combined company would be able to achieve," KeyBanc said. "We believe regulatory challenges with this deal could be solved via divestitures (i.e., CNN)."

NEEDHAM: The research firm said combining PSKY and WBD adds value "strategically and economically." They estimate $3B-$4.5B of cost synergies by combining the two, or $24B-$36B of value creation.

"If PSKY bids for WBD, it becomes clear that Larry Ellison, co-founder of Oracle, is financially supporting all of his son David's entertainment industry ambitions. This deep pocket backstop improves credit quality and improves equity holder's risk/reward profile, which should drive upside to its valuation multiple, we believe," Needham said.

Needham does not expect regulatory issues, in part because Skydance has already successfully navigated Washington, DC, in order to get its acquisition of Paramount closed. They also see other potential bidders, including Sony (SONY [https://seekingalpha.com/symbol/SONY]), Apple (AAPL [https://seekingalpha.com/symbol/AAPL]), Amazon (AMZN [https://seekingalpha.com/symbol/AMZN]), Netflix (NFLX [https://seekingalpha.com/symbol/NFLX]), and Comcast (CMCSA [https://seekingalpha.com/symbol/CMCSA]).

BANK OF AMERICA: The research firm thinks the industrial logic of the deal makes sense, but integration and restructuring would likely take years to implement.

"While we are surprised at how quickly a potential bid has materialized, we are not surprised at the significant interest WBD’s highly desirable assets are receiving. We believe that a PSKY bid would likely be an all-cash offer given pressure on PSKY equity," BofA said.

"Access to WBD's best-in-class library and IP would, in our view, significantly improve the prospects for PSKY, particularly in film and TV, and the potential combination of Paramount+ and HBO Max would create an extremely formidable competitor in streaming," they added.

GUGGENHEIM: The research firm sees the combination as an aggressive move that would significantly expand the intellectual property, production, and streaming assets controlled by Paramount ownership and be meaningfully disruptive to the broader media industry.

"The number three and number five ranked studios by domestic box office share would become number one. The number seven and number nine ranked domestic streaming services per Nielsen would become number five. The number four and number five ranked domestic television businesses by revenue would become number one with almost $30bn in 2025 revenue versus $22.6bn for the current leader," the research firm said.

BARCLAYS: The research firm sees the deal as being a significant strategic positive for both companies.

"On the studio side, Paramount and Warner Bros. would in essence become the biggest studio in the world with a formidable base of franchises that include DC Comics, Harry Potter, Mattel licenses like Barbie, Hasbro licenses like Transformers, Mission Impossible, Star Trek, Top Gun, Dora, SpongeBob, etc.," Barclays said.

RAYMOND JAMES: "We believe the strategic rationale and synergies of this combination would be quite strong and that the regulatory window is open. PSKY would get the crown jewel of WB Studios assets, including the portfolio of IP (DC Comics, Harry Potter, Game of Thrones, Lord of the Rings, Dune, etc.) that we think is second only to Disney," the research firm said. "This potential deal would create additional scale in the linear networks, with significant cost-cutting opportunity in these shrinking businesses."

WELLS FARGO: The research firm thinks by offering a bid for WBD, PSKY is "going big and not going home."

"In truth, we thought PSKY would undertake a build phase before getting more aggressive on M&A… This appears attractive for WBD shareholders, and we think a competitive process, at least for S&S is >50% probability. This puts WBD into deal-stock and risk-arb/event land, but we expect downside will be limited for the time being."

MORE ON WARNER BROS. DISCOVERY, PARAMOUNT SKYDANCE CORPORATION

* Warner Bros. Discovery And Paramount Merger Might Have Only One Winner [https://seekingalpha.com/article/4822467-warner-bros-discovery-and-paramount-merger-might-have-only-one-winner]
* Warner Bros. Discovery: A Potential Bid Means The Hard Work Is Done [https://seekingalpha.com/article/4822391-warner-bros-discovery-stock-potential-bid-means-hard-work-done-reiterate-strong-buy]
* Warner Bros. Discovery, Inc. (WBD) Presents At Goldman Sachs Communacopia + Technology Conference (Transcript) [https://seekingalpha.com/article/4821658-warner-bros-discovery-inc-wbd-presents-at-goldman-sachs-communacopia-technology-conference]
* Warner Bros. Discovery jumps on report Paramount Skydance preparing offer [https://seekingalpha.com/news/4494182-warner-bros-discovery-jumps-on-report-paramount-skydance-preparing-offer]
* Paramount Skydance taps former Meta executive Glasgow for the role of product chief [https://seekingalpha.com/news/4494051-paramount-skydance-taps-former-meta-executive-glasgow-for-the-role-of-product-chief]