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Acquisitions are ‘the most value-destructive action a company can take.’ — Aswath Damodaran, NYU
Paramount Skydance shareholders should hope the company loses its legal battle with the U.S. states trying to block its acquisition of Warner Bros. Discovery
That’s because if the deal goes through it stands a good chance to fail — failure in this case meaning that the combined company destroys more shareholder value than it creates.
Attorneys generals in 12 states last week filed a lawsuit to prevent the deal from going forward. But if they are successful — and a judge on Monday issued a temporary restraining order preventing the deal from proceeding — it could be what keeps Paramount from going down a path that would prove destructive for shareholders.
Acquisitions are “the most value-destructive action a company can take,” says M&A expert Aswath Damodaran, a finance professor at New York University. Perhaps the most textbook example of this value destruction was AOL’s acquisition of Time Warner in 2000, which eventually destroyed an estimated $200 billion of shareholder value. Ironically, Time Warner’s corporate assets, which have been bought and sold several times since, are now largely housed at Warner Bros. Discovery.
Spectacular as the failure of the AOL–Time Warner deal was, it is just one data point. But it is consistent with the historical record, according to Feng Gu, a professor of accounting and law at the University at Buffalo School of Management, and Baruch Lev, a professor of accounting and finance at New York University. In their book “The M&A Failure Trap,” they reported that roughly 70% to 75% of the 40,000 M&A deals between 1980 and 2022 were failures — destroying shareholder value.
Moreover, these percentages understate the long odds that Paramount faces, Gu noted. Sizable deals, as well as deals financed in large part by debt, have higher failure rates — and both are true about the Paramount-Warner deal. “The large deal size … and heavy long-term debt borrowing … point to a negative prospect,” Gu wrote in an email.
Gu and Lev judged an acquisition’s success or failure over the three-year period following a deal going through. It’s been just five months since Warner accepted Paramount’s offer, so the jury is still out. But early indications, including Paramount’s stock performance, are not encouraging.
M&A wave is a tsunami
The Paramount-Warner deal is high-profile, but it’s just one of many this year so far. The total dollar volume of global M&A deals in the first half of 2026 was 44% higher than the comparable total for 2025, setting a new first-half record. U.S.-only deals in the first half of the year were 72% higher than the comparable year-ago period. M&A volume has been on an inexorable march upward for a number of years, with the only major exception coming in 2020 during the COVID-19 pandemic.
Investors should care about this because active M&A volume frequently precedes major bear markets. That’s according to MIT finance professor Matthew Rhodes-Kropf, an expert in the M&A field. In an interview, he said that “each of the last six great merger waves on record” — going back more than 125 years — “ended with a precipitous decline in equity prices.”
Knowing that we’re in another great M&A wave that could end badly doesn’t tell us when a major market decline is imminent. But it is yet another straw in the wind that the stock market is skating on thin ice.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at [email protected]
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