Warner Bros. Discovery, the parent company of CNN and HBO, is reportedly weighing a plan to split its digital streaming and studio businesses from its legacy television networks in order to boost its sinking share price — just two years after the mega-merger.
WBD boss David Zaslav — who announced another round of layoffs this week that will slash 1,000 jobs — has examined several strategic options, ranging from selling assets to spinning off the company’s Hollywood studio Warner Bros. and its Max streaming service into a new company that isn’t weighed down by the firm’s hefty $39 billion debt load, Financial Times reported on Thursday.
The media giant’s market capitalization has fallen by a third to about $20 billion, and its stock has plunged nearly 70% since the company was formed via a merger between Warner Bros. and Discovery in 2022.
The stock surged more than 5%, to $8.74, in morning trading.
While the company has yet to hire an investment bank to initiate any specific transaction, its top management has been talking to advisers to “find a solution in shareholders’ best interest,” according to FT.
The outlet said that WBD — whose biggest backers include cable billionaire John Malone and the Newhouse family, which controls Condé Nast — has informally approached advisers to rival media groups to “understand if they would be interested in exploring M&A options with some of its existing assets,” the outlet added.
Warner Bros. Discovery did not comment, but the FT said sources familiar with the media giant said it could still decide to continue operating as it is currently structured.
WBD, which owns a slew of cable channels from TLC, Food Network, Animal Planet and HGTV, had reportedly considered deals with both Comcast’s NBCUniversal and Paramount, which recently agreed to a merger with David Ellison’s Skydance Media.
Such combinations could marry companies with legacy TV properties that are losing customers due to cord cutting, and also have subpar streaming services that are unable to grow their subscriber base to the level of titans like Netflix.
A break up of the company may be the strongest option as most of its debt could remain with the legacy pay-TV networks in such a scenario, sources said.
This could help its faster-growing streaming service spin off and achieve a higher valuation multiple, but one person familiar with the matter told the FT that Warner Bros. Discovery’s management was “aware of the risk of crossing creditors.”
Earlier this week, a Bank of America analyst called for the company to “explore strategic options” in order to boost shareholder value.
“In our view, the current composition as a consolidated public company is not working,” analyst Jessica Reif Ehrlich wrote in a note to clients Tuesday. “At current levels, we argue that exploring strategic alternatives such as asset sales, restructuring and/or mergers would create more shareholder value vs. the status quo.”
The analyst laid out a few scenarios, including spinning off linear channels — including CNN, which she estimated is worth about $6 billion.
That could allow its streaming service and studio assets to grow as a standalone company, as it would leave most of the company’s heavy debt-load with the TV assets.
The analyst said that such a move could lead to creditor backlash, however.
She said another option would be a joint venture or merger with another streamer, such as Paramount+, or merging with a broadcast network.
Such discussions come at a critical time for Warner Bros. Discovery, which faces financial headwinds at its linear business, a soft advertising environment and from last year’s Hollywood strikes.
It also is on the verge of losing its long-running NBA media rights to Amazon and NBC.
Zaslav set off speculation that he might be looking to make a deal when he replied to reporters’ questions about the US presidential race at last week’s Allen & Company conference in Sun Valley, Idaho.
“We just need an opportunity for deregulation, so companies can consolidate and do what we need to be even better,” Zaslav said.
