Warner Bros. Discovery stock jumps 29% following Ellison takeover report

Warner Bros. Discovery stock jumped more than 25% on Thursday after a report that the Larry Ellison-backed Paramount was preparing a cash bid to buy the company that owns HBO, CNN and the Warner Bros. studio.

The Ellison family and RedBird Capital Partners acquired Paramount last month, and has signaled that it would take bold steps as it tries to rebuild Paramount to its former glory.

Larry Ellison, the co-founder of Oracle, who ranks among the richest men in the world, and his 42-year-old son, David Ellison, who serves as Paramount’s chairman and chief executive, have big ambitions to build a top-tier entertainment company.

The Wall Street Journal reported that Paramount’s bid would be for the entire company, including its movie studio, streaming assets and cable networks. Warner Bros. Discovery is in the process of spinning its cable channels, including TNT, CNN and Cartoon Network, into a separate company, a transaction that Warner Bros. Discovery Chief Executive David Zaslav has said would be complete by next April.

A Warner Bros. takeover, if consummated, would rapidly accelerate the dramatic transformation of Hollywood. The rumored merger also would solve many of the issues facing the two companies, which have both stumbled in the race to streaming as deep-pocketed tech companies have gobbled up much of their historic turf.

Representatives of Paramount and Warner Bros. Discovery declined to comment.

The timing of a bid consideration was a surprise, particularly since it comes so soon after the Paramount and Skydance deal closed. But the surge in Paramount’s stock indicates that investors believe Paramount needs more content to work with, said Laurent Yoon, senior analyst at Bernstein.

“It’s almost a necessary deal in some sense for them to thrive and grow,” he said. “If there’s any player that wants to bulk up, there is no opportunity like this for a very long time. This is it.”

The proposed merger would pair two of the oldest and most storied film studios and a stable of popular television assets.

HBO has consistently set standards for prestige television and Paramount’s CBS broadcast network has long entertained huge audiences with NFL football and shows like “Matlock” and “Survivor.” Both companies have struggling cable channels and news divisions, CNN and CBS News, that could benefit from reinforcements.

Each of the companies have launched their own streaming services, HBO Max and Paramount+, but they lag far behind industry leaders in subscribers and engagement. Talks were already underway among various media companies to combine their streaming platforms to better compete against Netflix.

A decade ago, Warner Bros. properties — and its stately studio lot in Burbank — were among the most envied in the industry. But two disastrous mergers — AT&T’s purchase in 2018 followed by Discovery’s takeover three years ago — have led to steep staff cuts and near-constant shifts in strategy.

One person close to the situation who was not authorized for comment said the Ellison family has been mulling a possible Warner Bros. deal for months, viewing the assets as valuable and mismanaged.

Warners’ library includes Harry Potter, Batman and other DC Comics. HBO has “Game of Thrones” and the acclaimed TV series “The White Lotus.”

Analysts have seen Warner Bros. Discovery as among the most vulnerable.

Zaslav’s tenure leading Warner Bros. Discovery has also been widely criticized and led to a steep loss in value.

Still, the Warner film studio has had a strong year at the box office, serving as an affirmation of Zaslav’s decision to ditch AT&T’s plan to focus on releasing movies directly to its streaming service rather than focus on big screen releases. At the Goldman Sachs Communicopia conference in San Francisco on Wednesday, Zaslav touted his company’s start of a turnaround.

Warner Bros. Discovery stock closed at $12.54 on Wednesday. It had closed at $16.17 a share on Thursday, a gain of 29%.

Paramount Skydance shares closed up nearly 16% at $17.46.

Such a merger would likely lead to dramatic job losses but fortify Los Angeles as the capital of entertainment. In one symbolic move, Ellison and Paramount team set up their headquarters at Paramount’s storied lot on Melrose Avenue in Hollywood — not New York — where Paramount was based. Warner Bros. Discovery and NBCUniversal also operate from New York.