Wall Street showcases doubts that the reported Warner Bros. merger with Paramount will go through
David Zaslav has certainly made his mark on the Warner Bros. studio since taking over as CEO in May of 2021. The executive has garnered much attention with every decision he’s made, from cutting content from the Max streaming service to shelving multiple films for tax write-off purposes. Zaslav made the top of the list of highest-paid Hollywood executives with a salary of $498 million dollars from 2018 to 2022, but the underperformance of big-budgets films and the dual strikes created a big blow for the company.
Last week, it was reported that Zaslav met with Paramount Global CEO Bob Bakish in New York City to discuss a possible merger. Zaslav also spoke with Shari Redstone, who owns Paramount’s parent company. The news had taken off, but now, according to The Hollywood Reporter, Wall Street analyst Doug Creutz of TD Cowen, gave a report that the merger has some hurdles that make it difficult to see the deal going through to completion.
TD Cowen analyst Doug Creutz also gave a report that there are a couple of obstacles in the way of the merger: “regulatory and consideration.” With regulatory, he states, “we have a very hard time believing the current FTC/DOJ, which has been very aggressive in combating industry consolidation, would give this deal a pass. It would involve merging two of the five remaining major movie studios, two major television studios, and would create a very high concentration of linear network ownership (which last we checked is still a very large and EBITDA-positive business even given cord-cutting), including a significant consolidation of major sports rights.”
Creutz cites “consideration” as another hurdle, as well as a way to pay for the mergers. In his report, he says, “We think WBD is at least two years away from being able to use cash/debt to finance a major acquisition, so a Paramount deal would almost certainly have to be a stock deal,” he argued. “Shari Redstone would have to give up control of Paramount and become a minority equity holder in a merged entity; presumably she would want some sort of significant premium given the equity consideration, which we think WBD would and should be reluctant to pay (particularly given the beating WBD shares have taken since the Discovery-Warner merger was announced).”
The TD Cowen analyst concluded, “Ultimately, we think such a deal would be a mistake for WBD. Scale isn’t the solution to their problems, which are all about industry structure (if scale was a magic bullet, Disney’s stock wouldn’t be down more than 50 percent from its all-time high). Paramount would bring a lot of content ballast to the table, but much less in terms of premium, long-tail franchises, and WBD already has plenty of breadth of content.”
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