The proposed $111 billion acquisition of Warner Bros. Discovery (WBD) by Paramount Skydance Corp. (Paramount) has garnered significant attention from merger arbitrageurs. Despite the U.S. Department of Justice clearing the deal on June 12, 2026, the market currently prices the probability of the deal closing in the "80 per cents," according to Brian Lombardi, a merger arbitrage strategist at FBN securities. However, Lombardi believes the true odds are closer to "90 per cents," suggesting the deal is currently "mispriced."
At a recent WBD closing price of $26.83 on June 15, 2026, compared to the agreed-upon buyout price of $31 per share, there is a gross spread of $4.17 per share, or 15.5%. If the deal closes by the targeted date of September 30, 2026, this spread translates to an annualized return well into double digits, with one analysis calculating a simple annualized gross return of approximately 53%. This potential windfall, significantly higher than the typical three to four percentage points above overnight borrowing rates arbitrageurs usually pocket, makes the deal enticing.
The wide arbitrage spread reflects lingering uncertainties, including pending reviews by the European Commission (due July 7) and the UK Competition and Markets Authority (due August 7). Additionally, the deal's unusual foreign-ownership structure and the possibility of localized legal challenges from state attorneys general, such as California's Rob Bonta, contribute to the market's cautious pricing. David Ellison, who controls Paramount, is personally backing the bid, and Paramount has agreed to a $7 billion termination fee if regulatory approval is not secured, alongside a "ticking fee" of $0.25 per share per quarter if the transaction extends beyond September 30.
