The long-awaited media deal between Warner Bros. Discovery and Paramount may finally be on the horizon. Despite some skepticism from the market, the CEOs of both companies, David Zaslav and Bob Bakish, recently met to explore the possibility of a merger. The meeting, reported by Axios, took place at Paramount's headquarters in Times Square and lasted several hours. However, an official announcement regarding the deal is not expected until the new year.
Warner Bros. Discovery boasts a significant market value of around $30 billion, making it three times larger than Paramount. With properties such as Max (formerly HBO), CNN, Discovery TV networks, and a movie studio, WBD brings a wide range of assets to the table. Paramount, on the other hand, has its own movie studio along with well-known brands like CBS, MTV, and Nickelodeon. Merging the two companies could potentially lead to the consolidation and optimization of these assets. However, doubts remain among investors on Wall Street.
The stock prices of both companies reflect the market's cautious outlook. Paramount's shares have experienced a 2.6% decline on Thursday and an overall 11% dip this year. Meanwhile, Warner Bros. Discovery stock, which has seen a 20% increase over the year, dropped by 2.1% today.
Numerous unanswered questions surround the potential merger. Are these discussions substantial or merely a trial balloon? How would the deal be structured? Additionally, there is speculation about whether Warner Bros. Discovery must wait until next April to pursue any significant agreements. This date marks the two-year anniversary of the company's creation through a Reverse Morris Trust transaction. According to the common interpretation of this trust structure, major deals are typically prohibited for two years to avoid artificially resetting the company's valuation.
Regarding Paramount's controlling shareholder, Shari Redstone, her thoughts on the matter remain unknown. A representative for Redstone declined to comment on the ongoing discussions. The media industry eagerly awaits further updates on this potential game-changing merger.
The Uncertain Future of a WBD-Paramount Deal
It seems that National Amusements, the parent company of Paramount and owner of various movie theaters, is facing financial pressure due to the declining value of its assets. This has led Sumner Redstone, the head of National Amusements, to reconsider his previous stance of not selling Paramount. However, the lack of transparency surrounding this decision raises questions about the potential buyers involved.
Earlier this year, it was reported that David Zaslav, known for his penchant for media deals, had his pay structure altered. He is now incentivized based on free cash flow and debt reduction, in addition to stock performance.
Another key player in this uncertain situation is Bob Bakish. Recent reports suggest that he and other top executives at Paramount have secured new employment contracts featuring golden parachutes in the event of a change in control. While this may benefit those individuals, shareholders may not fare as well.
The motivations behind this potential deal are unclear, but there are concerns about the outcome. Rich Greenfield of LightShed has been skeptical about the merger since 2018 and recently expressed doubt about the combining of more linear TV assets under any legacy media company. He pointed out that Warner Bros. Discovery, which has significant exposure to linear TV, has faced investor concern about its health.
A wise perspective shared by the late Jack Welch, former CEO of GE, comes to mind when considering the uncertain future of these two companies. Welch once remarked on a similar struggling merger, stating, "Lashing two sinking ships together... How do you think that's going to work out?"
In conclusion, it remains unclear if a WBD-Paramount deal is forthcoming. Even if it does happen, the benefits for shareholders may be limited.