Warner and Paramount shares soared on news of a possible merger. What could get in the way?

Quotes of two major Hollywood studios - the newly created media conglomerate Paramount Skydance and Warner Bros Discovery - jumped 16% and 29%, respectively, in trading on September 11 and continued their rapid growth in the premarket on the 12th. According to the WSJ, the companies are discussing a merger backed by seven Ellisons, including billionaire and Oracle co-founder Larry Ellison. Lawyers warn that a possible merger could attract the attention of antitrust regulators.

Shares of Paramount Skydance and Warner Bros. Discovery rose sharply after The Wall Street Journal reported that Paramount is preparing an offer to buy Warner Bros.

Shares of Paramount Skydance on Thursday, September 11, added 15.5% at the end of trading, and quotes Warner Bros. Discovery rose by almost 29%. At the premarket on September 12, securities Paramount Skydance continued to grow by 2.5%, and Warner Bros Discovery - by 11%.

According to the WSJ, the bid to buy Warner Bros Discovery will be backed by the Ellison family, which includes Skydance CEO David Ellison and his father, billionaire and Oracle co-founder Larry Ellison. However, no formal offer has yet been made and plans could yet fall through, the newspaper noted.

As Reuters notes, citing a source, such a deal could unite two legendary Hollywood studios and change the balance of power in the entertainment industry.

If the deal between Paramount Skydance and Warner Bros. Discovery goes through, one corporation will own many of the entertainment industry's best-known brands: DC Comics superheroes, including Superman, Nickelodeon's SpongeBob, sci-fi franchises like "The Matrix" and "Star Trek," as well as two major news channels - CBS News and CNN. In addition, the deal will combine the streaming services of HBO MAX and Paramount+, Reuters writes.

The deal will require not only significant financial resources, but also the political influence of Larry Ellison - a longtime ally of US President Donald Trump - to overcome possible antitrust claims, the agency said. Earlier this week, the fortune of 81-year-old Ellison, who owns a 41% stake in cloud giant Oracle, rose sharply thanks to a surge in shares following the company's reporting.

"This deal is the Hollywood equivalent of the sequel that no one was expecting but many were anticipating," said eMarketer analyst Jeremy Goldman. At issue is Skydance's August acquisition of Paramount Global, which owns Nickelodeon, MTV, Comedy Central and its own movie studio, for $8.4 billion.

Warner Bros. Discovery is reorganizing its media business, separating its stagnant cable TV from its movie studio and streaming services. By preparing an offer ahead of the planned separation of Warner's business, Paramount Skydance aims to get ahead of other possible suitors for the studio's assets, which could include tech giants with more resources, including Amazon and Apple, the WSJ noted.

"For WBD shareholders, going out for cash looks far more attractive than waiting for the restructuring [led by Warner Bros. Discover CEO David] Zaslav to (possibly) start to take effect," said eMarketer analyst Jeremy Goldman.

The potential bid underscores the intensifying competition in the media industry, where traditional players are looking to scale and strengthen their online services amid falling TV audiences and advertising revenues, Reuters writes.

According to lawyers, such a deal is likely to trigger an antitrust probe, Reuters writes.

"The Justice Department will want to examine whether the merger could lead to higher prices for consumers, weakening the position of authors and reducing the diversity of content. At the same time, the DOJ's antitrust division under the Trump administration may take a softer view of the deal compared to the hard line of the Biden period," said Washington, D.C.-based antitrust attorney Andre Barlow.

He said the merger would reduce the number of independent major studios and give the combined company a larger market share in theatrical distribution, home video and content licensing. A merger of the companies' cable divisions could also strengthen their bargaining power, leading to higher advertising rates and fees from cable operators.

At the same time, the merger will create a stronger competitor for Netflix, Disney and Comcast in the streaming business, Reuters writes.

Analysts said any purchase of Warner Bros. Discovery, given the scale of the deal and Paramount Skydance's limited resources, would likely require significant private investment.

"It's a doable deal, I think it even makes sense. The Ellison family certainly doesn't have cash flow problems. And talks about consolidation of studios and streaming services have been going on for a long time," said Huber Research analyst Douglas Arthur.

Wells Fargo raised their target price on shares of Warner Bros Discovery to $14 on September 11, reiterating a neutral rating (equal weight). Its estimate implies a 16.2% decline in the company's stock. According to MT Newswires cited by Market Screener, shares of Warner Bros Discovery, Series A (WBD) have an average recommendation to buy ( rating of "overweight") and an average target of $14 according to a survey of FactSet analysts.

In early September, Bank of America initiated coverage on shares of newly formed Paramount Skydance with a "sell" recommendation (underperform rating) and $11 target price, based on a valuation of about 7.5× 2026 EBITDA. Their valuation implies a 37% drop in the stock.

While analysts say Paramount Skydance has the potential to become a dynamic global media company, it will take time. Overall, the broker sees an "unclear picture" for the media group.

BofA projected adjusted EBITDA for 2026 at $3.06 billion - "well below management's expectations" presented when the merger between Paramount Global and Skydance Media was announced last month. For 2026, management expects EBITDA of about $4.1 billion.

Among the 26 analysts covering Paramount Skydance stock, the majority - 13 - are neutral (Hold rating). Only two advise buying the company's stock (Buy and Overweight ratings) and 11 advise selling it (Underweight and Sell).

On securities Warner Bros Discovery most analysts, on the contrary, are positive: 15 of 27 advise to buy them (Buy and Overweight), the remaining 12 - to hold (Hold).

This article was AI-translated and verified by a human editor