A media mogul's dilemma: Will David Zaslav sell or split Warner Bros. Discovery?
Since John Malone's persuasive move, David Zaslav has been known for his deal-making prowess as CEO of Discovery Communications. From acquiring Scripps Networks to brokering the WarnerMedia deal over golf emojis, Zaslav's leadership has been defined by strategic acquisitions. But the upcoming months present a critical juncture, as Zaslav faces his most consequential decision yet.
The Battle for Warner Bros. Discovery
David Ellison, CEO of Paramount, has expressed his interest in acquiring Warner Bros. Discovery (WBD) in private discussions with Hollywood's elite. However, his initial offer of $20 per share was rejected by WBD, as reported by Bloomberg. Ellison, potentially backed by his father or a third party, is expected to return with a higher offer, and according to The Wall Street Journal, he might even go directly to WBD shareholders if negotiations stall.
Ellison's Big Deal
Ellison's desire to acquire WBD stems from his belief in media consolidation. He argues that more content leads to increased engagement, a strategy he outlined at the Bloomberg Screentime conference. Ellison wants to acquire WBD before Zaslav can execute his plan to split the company into two entities: one led by Zaslav, comprising HBO and Warner Bros. studios, and another led by Gunnar Weidenfels, encompassing the former Discovery and Warner networks, along with additional debt and a stake in the studios business.
The Split Strategy
Zaslav and other WBD executives argue that splitting the company will unlock value. They believe that a studios and HBO business, free from debt and linear TV channels, would be highly attractive to potential acquirers. Meanwhile, the Discovery business, including CNN, would have multiple strategic options, such as being run for cash, serving as a rollup vehicle, or being sold off to private equity.
The Post-Split Landscape
Influential Wall Street analyst Jessica Reif-Ehrlich describes the post-split Warner Bros. business as a "crown jewel" asset, predicting a bidding war amongst potential buyers. Reif-Ehrlich believes that a split could generate the greatest potential value for WBD. This viewpoint seems to be shared by WBD executives, who are confident that Ellison and Paramount, along with other bidders like Apple, Netflix, Comcast, and Sony, would still be interested in acquiring the split entities.
Skepticism and Counterpoints
However, the interest in acquiring WBD is not without skepticism. Greg Peters, co-CEO of Netflix, downplayed the idea of a potential deal, citing Netflix's heritage as builders rather than buyers and expressing skepticism towards big media mergers. Rich Greenfield, another notable Wall Street analyst, shares similar doubts about a Netflix deal for WB, emphasizing that Netflix's subscriber growth is driven by original content.
The Future of Warner Bros.
As Warner Bros. stands at a pivotal moment, the outcome remains uncertain. Ellison might return with an offer that brings the storied studio under Skydance control, or Zaslav might proceed with his split strategy, testing the market's appetite. The future of one of Hollywood's most iconic studios hangs in the balance, with Ellison waiting in the wings. The question remains: Who else is interested in this media powerhouse?
