Warner Bros. Discovery (WBD) has seen a notable surge in its share price in recent weeks, fuelled by renewed speculation around a potential takeover by Skydance Media. For shareholders, this has been welcome relief after years of volatility and cost-cutting, but the critical question is whether the market has priced in too much optimism too early. There are solid reasons for enthusiasm, but also significant risks that may leave today’s valuation running ahead of fair value.
The case for optimism
The primary driver of the recent rally is simple: scarcity value. WBD owns one of the deepest content libraries in the world, spanning Warner Bros. studios, HBO, CNN, and Discovery’s lifestyle portfolio.
These are scarce, high-quality assets in a media environment where premium IP is increasingly critical to success. For Skydance, which has production credentials but lacked WBD’s global scale and library, the strategic logic is clear: bolt on world-class content and distribution, as well as becoming an immediate theatrical and streaming powerhouse.
For WBD shareholders, a bid from Skydance could crystallise value more quickly than waiting for a turnaround, given that WBD has spent much of the past two years trading at distressed multiples. Management under David Zaslav has focused heavily on paying down debt and rationalising operations, but progress has been slow to feed through into sustained multiple re-rating. A takeover could shortcut this process.
There is also the possibility of a competitive dynamic. If Skydance makes a formal offer, it may flush out other interested parties. In a landscape where Amazon, Apple, and Netflix are spending heavily on content but are more constrained in pursuing acquisitions, private equity or sovereign wealth capital could still emerge as alternative bidders.
Why we bought - and why we’re now more cautious
We added WBD into our portfolios at Shard Capital when we felt it was deeply underappreciated. The valuation did not reflect the sheer scale of the content library, the long-term optionality in streaming, or the ability of management to unlock synergies and deleverage. We saw an opportunity to own a high-quality global media franchise at a discount.
However, while we continue to believe in the long-term value of the assets, we also believe the market has now run up too fast, too quickly. Much of the recent move reflects speculative deal hopes rather than fundamental change. With no firm bid on the table, no indicative price, and no certainty that the deal will clear regulatory hurdles, the risk/reward balance has shifted.
The first and most immediate is deal risk. At this stage, no firm offer has been made, no regulatory approvals have been filed, and no financing package has been disclosed. Media M&A is notoriously difficult and any acquirer of WBD would have to be prepared for a lengthy approval process across multiple jurisdictions.
Potential acquirers and the CNN problem
If Skydance does proceed, it may not be the only party at the table. Several other strategic players could plausibly see value in WBD’s assets, though any transaction would face significant regulatory review:
- Apple & Amazon: Both companies have the balance sheets and strategic ambition to buy WBD. The appeal would be clear: instant access to one of the deepest content libraries in the world, including Harry Potter, DC Comics, and HBO. However, Apple and Amazon would have little interest in WBD’s legacy cable networks, which are structurally declining and outside their core focus. A carve-out or divestiture might be necessary to make such a deal viable. The regulatory challenge here would not be the news assets, but rather concerns over Big Tech’s growing dominance in both distribution and content.
- Netflix: Like Apple and Amazon, Netflix would covet the studio and franchise IP but would likely have no desire for WBD’s cable networks or CNN. Netflix has traditionally avoided large M&A, preferring organic growth, but a transformational acquisition could cement its dominance. Regulatory scrutiny would be intense but not insurmountable.
- Comcast (NBCUniversal): Comcast has long been seen as a natural consolidator in media, and WBD’s assets would complement NBCUniversal. The major obstacle would be combining CNN with Comcast’s existing news channels, NBC and MSNBC, which could raise red flags with regulators and potentially force divestitures. Still, Comcast has the scale and industry logic to be a serious contender if willing to navigate those hurdles.
- Disney: WBD’s franchises would be strategically attractive to Disney, strengthening its studio and streaming operations. But integrating CNN alongside ABC News would almost certainly require regulatory remedies. Financial capacity is another question, given Disney’s balance sheet constraints.
- Skydance (Paramount Skydance): Having recently merged with Paramount Global, Skydance now controls CBS News. That complicates any attempt to acquire WBD, as it would put CNN and CBS News under one roof. Regulators would likely demand a divestiture of one news outlet. Nonetheless, Skydance has strategic logic: it would gain scale, IP, and production heft, though financing and regulatory concessions would be major hurdles.
There are many credible potential acquirers for WBD, each with strategic rationale but a pathway complicated by regulatory approvals, especially around news assets and broader antitrust concerns.
We continue to believe Warner Bros. Discovery owns one of the most compelling sets of media assets globally, but the recent rally, driven by takeover speculation, has left the stock looking ahead of itself. Until an offer is made, and importantly, until a price is known, we view the current valuation as more a reflection of market speculation than a reassessment of long-term fundamentals.
Stewart Abrahart is an investment associate & equity analyst at Shard Capital. The views expressed above should not be taken as investment advice.