Media and entertainment giants Warner Bros. Discovery (NASDAQ:WBD) and Paramount (NASDAQ:PARA) are in merger discussions, Axios reported. The CEOs of both companies reportedly met on Tuesday, December 19, to explore the possibility of a strategic alliance. However, the news appeared to unsettle investors, leading to a decline in the stock prices of both companies on Wednesday. WBD and PARA stocks declined about 6% and 2%, respectively, with the downward trend continuing after hours.
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Additionally, WBD’s CEO, David Zaslav, has discussed a potential deal with Shari Redstone, who owns National Amusements, the parent company of Paramount. If successful, the merger would create a news and entertainment powerhouse.
However, it is still uncertain whether Warner Bros. Discovery plans to acquire Paramount or its parent company, National Amusements.
The Deal May Not Materialize, Says Analyst
Analyst Doug Creutz from TD Cowen is skeptical about the merger materializing. Citing regulatory hurdles, the analyst said that the Federal Trade Commission and the U.S. Department of Justice, known for their tough stance on industry consolidation, would disapprove of the deal.
Another crucial aspect revolves around the funding of the deal. Creutz believes that WBD will not be able to finance a significant acquisition with its current debt or cash balance. Consequently, a PARA deal might require a stock-based approach.
In this scenario, Shari Redstone could have to cede control of Paramount and become a minority equity holder in the combined entity. The analyst anticipates that she would demand a significant premium due to the equity component, which WBD might find impractical. The analyst maintained a Buy rating on the stock with a price target of $15.
Meanwhile, let’s look at what the Street recommends for these two stocks.
What is the Forecast for WBD Stock?
Wall Street is cautiously optimistic about WBD stock. With 10 Buy and five Hold recommendations, Warner Bros. Discovery stock has a Moderate Buy consensus rating. Further, analysts’ average price target of $16.42 implies 40.82% upside potential from current levels.
Is Paramount Global a Buy or Sell?
Wall Street analysts remain sidelined on Paramount stock. With six Buy, five Hold, and seven Sell recommendations, PARA stock has a Hold consensus rating. Further, analysts’ average price target of $14.82 implies 4.39% downside potential from current levels.
