Why did Warner Bros Discovery's shares spike today?

Key points

• Rumors are circulating that a major competitor is preparing a buyout offer.
• It wouldn't be cheap; the company currently has a market capitalization of over 40 billion dollars.
• An apparent attempt at acquisition by a competitor was the main factor behind the dizzying rise in Warner Bros Discovery's shares on Thursday. Following the news that the historic entertainment company is up for grabs, investors rushed to buy shares anticipating a generous offer. Warner soared nearly 29% in that session.

Is a mega Hollywood deal underway?

That afternoon, The Wall Street Journal published a news article stating that Paramount Skydance is preparing to make a predominantly cash offer for Warner. This effort apparently has the backing of the family of Paramount Skydance CEO David Ellison, which includes Oracle co-founder and executive chairman Larry Ellison and film producer Megan Ellison. It was not immediately clear which family members might be involved.

The Journal, citing “people familiar with the situation”, wrote that Paramount Skydance's move will be for the entirety of the extensive Warner empire.

The newspaper added that, in preparing an offer, Paramount Skydance hopes to get ahead of large entertainment conglomerates that might want to take over Warner's assets.

If successful, the combination of Paramount Skydance and Warner would be revolutionary for the entertainment industry. Together, the two own an impressive amount of well-known properties, including the HBO cable/streaming network, the DC Studios superhero franchise base, and Nickelodeon Movies.

The Journal did not speculate on how much Paramount Skydance plans to offer for Warner; however, the amount must be substantial considering that the market capitalization of the latter surpassed 40 billion dollars after the stock rebound.

Neither company has officially commented on the report.

Stay tuned!

Given David Ellison's successful entry into Paramount Skydance last month, along with the considerable financial power he and his team can muster, I would say that the Journal's report carries a lot of credibility. However, I would be cautious about approaching Warner's stocks right now, as we have no indications of what the final price might be.

Personally, I am concerned that we are facing another speculative bubble in the entertainment sector. These gigantic mergers rarely benefit the end consumer and often result in massive layoffs. Do we really need more concentration in an industry already dominated by a few players? Creativity could be the first victim of this acquisition.