Warner Bros Discovery mulls major restructuring to boost stock value

CEO David Zaslav is evaluating various strategic paths, which may include asset sales or establishing a new entity for its Warner Bros movie studio and Max streaming service

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Warner Bros Discovery is reportedly considering a significant restructuring that would separate its digital streaming and studio operations from its traditional television networks. The US media powerhouse is exploring ways to potentially enhance its underperforming stock value, according to a report by Financial Times.
 

Chief Executive Officer David Zaslav is evaluating various strategic paths, which may include asset sales or establishing a new entity for its Warner Bros movie studio and Max streaming service, the report said.

This move aims to create a separate company that would operate without the weight of the group’s substantial $39 billion debt burden.

Warner Bros Discovery, whose market value has decreased by around one-third to around $20 billion over the past year, has not yet engaged an investment bank to pursue any specific transaction. However, senior management has been in discussions with advisors to identify a solution that aligns with the interests of shareholders, the report stated.

The report quoted sources as saying that people close to Warner Bros Discovery have also informally reached out to advisors of competing media companies to check interest in exploring merger and acquisition opportunities involving some of its existing assets.

Potential partnerships

Previously, Warner Bros Discovery reportedly considered potential partnerships with both Comcast’s NBCUniversal and Paramount, the latter of which has since agreed to be acquired by David Ellison’s Skydance Media. Both companies possess traditional television assets and smaller-scale streaming platforms.

The report cited sources as saying that a potential breakup is being considered as the strongest option for WBD. Under this scenario, most of its debt could be retained by the mature pay-TV networks business. This strategy aims to enhance the valuation multiple of the faster-growing streaming spin-off, the report said.

The Bank of America analysts have cautioned that such a division could severely impact bondholders, labelling it potentially devastating, the report said.

A strategic ‘spin-off’

The proposed ‘strategic spin-off’ concept would establish a separate entity comprising Warner Bros Discovery’s traditional television assets. Despite these assets experiencing revenue decline, they continue to generate significant cash flow. This move would concentrate much of WBD’s substantial debt within the TV division, thereby allowing the faster-growing streaming and studio segments to operate with reduced debt and greater flexibility for future investments in growth, the report further said.

The discussions highlight border apprehensions surrounding WBD, whose stock has declined significantly — around 70 per cent — since AT&T separated Warner Bros and merged it with Discovery two years ago, the report said.

Challenges at Warner Bros

The company has faced challenges, including a downturn in advertising revenue, substantial expenses in developing its streaming services, impacts from the Covid-19 pandemic, labour disputes in Hollywood, and costly failures in certain projects.

In response, Warner Bros Discovery has implemented cost-cutting measures and reduced its debt. However, concerns escalated in February when the company’s chief financial officer refrained from providing forecasts for this year’s free cash flow, leading to a 10 per cent drop in its stock price, the report said.