As Warner Bros. Saga Drags on, I’m Tuning Into a Another Media Player
This media company is smaller, but could it become another takeover target? Here’s how I’d handle it.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
The proposed merger between Paramount Skydance (PSKY) and Warner Bros. Discovery (WBD) continues to generate drama. Twelve states, led by California, have filed an anti-trust lawsuit, citing reduced competition and potential harm to consumers.
It could be that there’s more to this battle than meets the eye. Paramount Skydance is considered right-leaning. The states that are attempting to block the merger are overwhelmingly blue, led by 12 attorneys general who are Democrats.
Paramount Skydance already controls CBS, including its news division. Among other assets, it is set to acquire CNN if the deal with Warner Bros. Discovery is finalized.
A Politicized Merger
The deal is drawing interest for a variety of reasons, including a possible political element.
On Reddit (RDDT), which is often perceived as a left-leaning website, one Redditor commented that “CNN is why Trump gave the greenlight to this merger in the first place”. According to Variety, Paula Reid, CNN’s Chief Legal Correspondent, declined to renew her contract due to uncertainty over the takeover.
Versant Media Group
I’m not interested in the above-named companies. Paramount shares have lost 38% this year, while Warner Bros. shares are down by 10%. Netflix (NFLX), the one-time front runner in the Warner Bros.’ sweepstakes, has seen its shares decline by 20% this year.
What does interest me is a small company named Versant Media Group (VSNT). Versant is a spinoff of Comcast (CMCSA) that started trading independently at the start of this year.
Versant’s assets include CNBC, MS NOW (formerly MSNBC), and USA Network. It also owns digital assets like Fandango and Rotten Tomatoes.
Could Versant Find Itself in a Similar Situation?
Could Versant find itself the subject of a similar ideological tug-of-war?
This isn’t the exact same situation. Warner Bros. controls highly desirable assets like HBO/Max. There are very good reasons why Versant is considered less attractive.
It’s possible, however, that Versant could draw interest, particularly with MS NOW.
The Game Plan for Versant
Unlike Warner Bros. Discovery, which has a market capitalization of $64 billion, Versant has a market cap of just $5.25 billion.
The stock trades with an appealing current yield of 4%. That yield would be even more appealing at 5%. For that to happen, the stock would need to fall to about $30. A decline to the $30 level would bring Versant’s market cap down to approximately $4.25 billion.
That price level just happens to be the origin point (shaded yellow) of a strong move higher in February that saw the stock climb 50% in less than three months. For this reason, our entry will be approximately $30 (point A).
Chart via Tradingview
Our stop will be located below $27, placing it under Versant’s February low (point B). Our target is the stock’s May closing high of $44 (point C).
The risk on this trade is approximately $3 per share, while the reward is approximately $14 per share. If the trade moves in our favor by $3 or more, we’ll raise the stop to the breakeven point of $30, reducing the risk on the trade.
At the time of publication, Ponsi was long RDDT.
