Warner Bros. Discovery Contemplates Sale of Entire Company. Here's What That Means for Investors.

Most legacy media companies have struggled in their transition to streaming, but probably none have done worse than Warner Bros. Discovery (NASDAQ: WBD).

Despite its bevy of attractive assets and intellectual property like HBO, Warner Bros. Studios, and the Turner Networks, Warner Bros. Discovery has traded down more than 50% from where it opened at $24.08 when the merger closed in April 2022.

The stock surged in September, however, on reports that Paramount Skydance could be interested in acquiring the company, leading the stock to jump 68% last month.

Warner Bros. Discovery seems to have taken another step in that direction with the company now saying that it's undergoing a "review of strategic alternatives," which is typically a euphemism for considering a sale.

Image source: Getty Images.

Warner Bros. Discovery puts itself on the auction block

In June, the company announced a plan to split into two companies, one focused on streaming studios and one focused on TV. In a press release this morning, the company said it was continuing to progress toward that goal, but it was reviewing strategic alternatives due to interest from multiple parties to acquire the entire company.

It said it would evaluate those offers and other options while moving forward on its separation plan.

Is this good news for investors?

Notably, the stock didn't react much to the news as it was trading up just 1.5% as of 3:21 p.m. ET. Typically, such news could give a jolt to an ailing company like Warner Bros. Discovery, but the upside of a sale was probably priced after news of the Paramount Skydance interest came out.

Warner Bros. Discovery now has a market cap of $51 billion, but it carries a massive debt burden from AT&T's acquisition of Time Warner, so its enterprise value, which includes debt, is $85 billion, which is effectively the cost of buying the company at the current stock price.

It's unclear how much Paramount Skydance was willing to offer for Warner Bros. Discovery, but if there is interest from multiple parties, attempting to create a bidding war makes sense for Warner Bros. Discovery.

Considering the beaten-down valuations for other legacy media companies, it may be hard for Warner Bros. Discovery to get much more than $85 billion, but it could pay off for investors.

Given the potential for a bidding war, there is significant upside in the stock, though it's likely to plunge if no offer materializes.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Warner Bros. Discovery. The Motley Fool has a disclosure policy.