Andrew Bary

Warner Bros. Discovery stock hit its lowest level on Friday since Netflix pulled out of the bidding war for the media company -- and investors stand to earn a 14% return on the shares if the merger with Paramount Skydance occurs as scheduled in the third quarter.

Warner Bros. stock fell 1.1% to $27.14 on Friday, down from almost $29 just before Netflix exited the takeover battle on Feb. 27.

Paramount has agreed to pay $31 a share in cash for Warner Bros., with a "ticking fee" of 25 cents a quarter if the deal closing is delayed past Sept. 30.

Here's the math on the takeover arbitrage: Investors stand to earn about 14% if they buy Warner Bros. stock now at $27.14 ($31 divided by $27.14) and the deal gets done. If the deal is completed by the end of the third quarter as planned, the annualized spread would be around 25%, Barron's estimates.

A 25% annualized spread is high for a takeover arbitrage situation: Deals that are viewed as safe usually trade at 10% annualized spreads or less.

There doesn't appear to have been any news to account for the recent widening in the spread other than the broad weakness in the stock market, with the S&P 500 hitting a new low for 2026 on Friday.

The selloff in Paramount stock hasn't helped: Shares were down 0.8% to $9.72 Friday after hitting a new 52-week low. The stock traded above $13 in the wake of the deal.

There could be concern about regulatory and antitrust problems that could delay the closing or make it hard to close the deal. If the deal unexpectedly falls apart, Warner Bros stock likely is headed lower since Netflix probably is out of the game completely. Big deals, such as the one concerning Warner Bros., tend to have wider spreads since they tax the capital of the takeover arbitrage community. Warner Bros. is now valued at $68 billion.

Financing isn't an issue. Paramount has $54 billion in committed bank financing, and has $47 billion in equity financing coming from the Ellison family and the RedBird investment firm at $16 a share -- a big premium to the current Paramount stock price.

Paramount will have a lot of debt following the deal -- nearly $80 billion -- and it plans to deleverage rapidly, a goal that has its Wall Street skeptics.

Warner Bros. CEO David Zaslav and other company executives made what looks now like a smart move in selling stock after the deal was officially reached with Paramount in early March. Zaslav sold four million shares of Warner stock at $28.26 apiece on March 3.

Write to Andrew Bary at andrew.bary@barrons.com

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March 13, 2026 17:51 ET (21:51 GMT)

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