Warner Bros horror festival has a happy side plot in mergers

Warner Bros Discovery finds itself entangled in a horror festival of mergers and acquisitions, facing regulatory nightmares after multiple state prosecutors sued to block its proposed union with Paramount Skydance, valued at €95 billion. Time Warner faced a similar legal hurdle when it attempted to sell to AT&T. A savvy manager, however, could profit from the stock market frenzy.

Paramount has announced a June delay in the closing date for its blockbuster TV and movie acquisition, pending a trial next year. A coalition of 12 states, led by California, alleges the merger would harm competition in cable television and high-budget film markets, with CNN News potentially under Paramount's control impacting the deal.

Despite the legal obstacle, the delay costs Paramount CEO David Ellison money and time. WBD shareholders receive €0.22 per share, or €560 million, for each quarter the deal remains unfinished starting in September. Additionally, veteran WBD executives know prolonged uncertainty can dampen morale and momentum. Deep-pocket rivals such as Netflix, Apple, and Amazon might try to lure talent.

For investors, the previous terror-themed series' delivery offers a lesson. AT&T's $73 billion bid for Time Warner in 2016 was halted by the Department of Justice, causing the stock to drop around 18% below the offer price. If an investor bought at that low point and held until the 2018 closing, they would have earned an annualized return of 43%, far exceeding the 16% return of the S&P 500 during the same period.

WBD's stock fell similarly when state prosecutors' lawsuit caused panic in September 2018, falling below €23 per share. Assuming Ellison can overcome the setback before June 1, he may need to pay around €0.59 for the delay, in addition to the €27 per share agreed upon in the deal. The combined return of weathering the legal storm amounts to 19%. As these blockbuster acquisitions demonstrate, navigating judicial horror shows can be profitable.