As a dedicated gamer and tech enthusiast with a background in finance, I’ve been closely following the recent developments in the media industry, particularly the ongoing speculation surrounding Paramount Global and Warner Bros. Discovery. The potential restructuring and mergers within these companies have kept me on the edge of my seat for months.
I’ve been eagerly following the developments in Hollywood for the past few months regarding Shari Redstone’s plans to sell control of her Paramount Global empire. The prospect of dismantling a storied studio, the long line of potential buyers, the anxiety among the thousands of employees, and the ultimate signing of a multibillion-dollar merger agreement between Paramount and Skydance Media, founded by wealthy heir David Ellison, have left me and many others in the industry guessing what could come next. The upcoming “go-shop” window ending on August 21 is our next deadline to discover the answer.
In the near future, there’s a good chance that the M&A gossip will once again focus on Burbank, where Warner Bros. Discovery is grappling with doubts about the compatibility of its asset portfolio – derived from the $43 billion separation of Warners assets from AT&T and transferred to Discovery in 2022. In an industry undergoing significant change towards cord-cutting and streaming, traditional cable brands like TNT, TBS, and HLN may not be well-equipped to keep up.
In April, a two-year long Reverse Morris Trust lockup period for M&A transactions involving the company came to an end. Recently, CEO David Zaslav was at Sun Valley discussing the possibility that the next presidential administration may bring deregulation, enabling companies to merge and improve further.
On a Tuesday update, analysts from Bank of America’s Wall Street team voiced their concerns about Warner Bros. Discovery’s current state. With the stock price dropping by 30% so far this year, they believe that the company isn’t performing as well as it could be in its consolidated public form. In simpler terms, things aren’t working out as planned. To boost shareholder value, they suggest considering strategic moves such as asset sales, restructuring, or mergers instead of sticking with the status quo. The report, headed by Jessica Reif Ehrlich, clearly states this perspective.
The report, titled “Is Unbundling the Answer?,” posits a few scenarios, including asset sales — BoFA thinks CNN, for example, could potentially be worth $6 billion if spun off — and also a potential merger or partnership with a broadcast network (Fox was bandied about by the analysts), which would be a prize asset to complement Warners streaming properties (like Max and Discovery+) and large portfolio of cable channels (HGTV, TruTV, TCM and more).
But the Bank of America team also spends time on a scenario that doesn’t involve an outright sale of the entire company or a streaming partnership or one-off asset sales — they suggest that Warner Bros. Discovery could spin off all its linear assets into a separate holding company saddled with an estimated $40 billion debt so that the core of the company (its Warner Bros. studios and direct-to-consumer assets) can return to growth.
In this imagined situation for a possible restructuring, WBD might transfer its DTC and Studio properties to a fresh company, freeing it from the weighty debt obligations. The remaining company would then carry a substantial debt burden related to its linear assets. This scenario recalls Rupert Murdoch’s 2013 empire split, where higher-performing studio and TV assets such as 20th Century and Fox News were separated from his struggling portfolio of newspapers and book publishers viewed as less promising investments.
The Wall Street team believes that this newly independent company, which holds WBD’s debt and consists of linear TV assets, has the potential to acquire more linear TV properties from other companies in the industry. Companies like Disney, NBCUniversal, AMC Networks, and others have channels they might consider offloading.
“Other companies like WBD experience similar challenges but have difficulty finding suitable replacements since there aren’t many buyers for their secularly declining assets. This Linear Spinco Asset, if considered separately, could be an excellent candidate for consolidation with other distressed assets, possibly at attractive prices.”
The appeal of a holding company to scoop up declining linear TV assets across Hollywood (and, presumably, free up studios to make a better pitch to investors as “pure-play” content companies) may be clear enough to the companies themselves, at least. Major pay TV providers collectively lost about 5 million subscribers last year, according to a Leichtman Research Group tally, accelerating from about 4.6 million subs lost in 2022.
If such an action is feasible or if it would be taken into account by high-level executives at Warner, that’s a different question altogether. According to Bank of America’s analysts, with shares trading as they are and having remained stagnant for the past year, they believe it’s worth pondering over this potential solution as a last resort.
On August 7, Warner Bros. Discovery, currently valued at approximately $7.80 per share in the stock market, will release their earnings report for the second quarter.
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2024-07-16 19:54