Just two years after its mega-merger, Warner Bros. Discovery, the parent company of CNN and HBO, is reportedly considering plans to separate its digital streaming and studio businesses from its traditional TV networks in a bid to boost its sagging stock price.
WBD President David Zaslav, who announced a new round of layoffs this week that would cut 1,000 jobs, has been considering several strategic options, from selling assets to spinning off its Hollywood studio, Warner Bros., and Max streaming service into a new company that wouldn’t be saddled with the company’s massive $39 billion debt load. Financial Times It was reported on Thursday.
The media giant’s market capitalization has fallen by about a third to about $20 billion, and its shares have fallen nearly 70% since the company was formed in 2022 from the merger of Warner Bros. and Discovery.
Shares rose more than 5% to $8.74 in morning trading.
The company has not yet hired investment banks to begin any specific transaction, but management is in talks with advisers to “find a solution that maximises returns for shareholders”, according to the FT.
WBD’s biggest backers include cable billionaire John Malone and the Newhouse family, which runs Conde Nast, the media source said, adding that the company has informally reached out to advisers to rival media groups “to understand whether they would be interested in exploring M&A options for some of its existing assets.”
Warner Bros. Discovery declined to comment, but the FT reported that sources close to the media giant said the company could decide to continue operating in its current structure.
WBD, which owns a number of cable channels including TLC, Food Network, Animal Planet and HGTV, was reportedly considering deals with Comcast’s NBCUniversal and Paramount, which recently agreed to merge with David Ellison’s Skydance Media.
Such a combination could bring together a company with traditional TV assets that are losing customers as cable TV subscribers cancel, and a company with an underdog streaming service that can’t grow subscriber numbers to the same levels as giants like Netflix.
In such a scenario, most of the company’s debt would likely remain in its traditional pay-TV networks, making breaking up the company into two parts could be the best option, the people said.
That could help spin off the fast-growing streaming service and achieve a higher valuation, but one person familiar with the matter told the Financial Times that Warner Bros. Discovery’s management was “aware of the risks of being at odds with creditors.”
Earlier this week, analysts at Bank of America called on the company to “explore strategic alternatives” to enhance shareholder value.
“In our view, the current configuration as a combined public company is not working,” analyst Jessica Reif Ehrlich wrote in a client note on Tuesday. “At current levels, we argue that exploring strategic alternatives, such as asset sales, restructurings or mergers, would create greater shareholder value than maintaining the status quo.”
Analysts have presented several scenarios, including the separation of the linear channels, including CNN, which is estimated to be worth about $6 billion.
This would leave most of the company’s heavy debt in its TV assets, potentially allowing its streaming service and studio assets to grow as independent companies.
But analysts said such a move could spark a backlash from creditors.
She said another option would be a joint venture or merger with another streamer, such as Paramount+, or even a merger with a broadcast network.
The discussions come at a critical time for Warner Bros. Discovery, which is facing financial headwinds in its linear business, a weak advertising environment and last year’s Hollywood strikes.
The company also faces the risk of losing its long-held NBA media rights to Amazon and NBC.
Zaslav sparked speculation that he was eyeing a deal when he answered reporters’ questions about the U.S. presidential election at an Allen & Company conference in Sun Valley, Idaho, last week.
“If there’s an opportunity for deregulation, companies can consolidate and do what they need to do to get better,” Zaslav said.
