Analysts Express Concerns Over Potential Merger
Warner Bros Discovery and Paramount Global are facing criticism from Wall Street analysts who believe that a potential merger between the two companies will result in increased debt and struggling traditional television assets. This follows news of discussions between the CEOs of both companies. Industry speculation about consolidation has been rife in recent months, as companies without the scale to compete with streaming giant Netflix continue to lose customers to cord-cutting.
Quilter Cheviot technology analyst Ben Barringer commented, “Both businesses are heavily indebted and it is likely further debt will need to be issued to make this deal possible.”
The Pros and Cons of the Merger
While the merger would create the largest movie studio in Hollywood and a streaming business with the third-highest number of U.S. subscribers, the decline in the traditional TV business poses challenges. Warner Bros Discovery has been attempting to improve its cash flow and reduce costs but still carries a significant debt of around $45 billion. EMarketer senior analyst Ross Benes expressed concern, stating, “It’s risky to push a deal of this size during an election year when antitrust legislation is making a comeback.”
Timing and Potential Competitors
Analysts believe that any potential deal between the companies is unlikely to occur before April 2024. This is the end of the two-year lock-up period after which Warner Bros Discovery can pursue another merger without being heavily impacted by tax implications. Some analysts speculate that the discussions may lead to NBCUniversal-owner Comcast making its own move with Warner Bros Discovery. With a market value of nearly $180 billion, Comcast has the required capital structure and assets to benefit both Warner Bros Discovery and Paramount Global in a sustainable manner.
MoffettNathanson analysts stated, “At the end of the day, Comcast may be the one strategic buyer with the capital structure and assets required to benefit either Warner Bros Discovery or Paramount Global in a long-term viable way.”