Warner Bros Discovery (WBD) is reportedly contemplating splitting its streaming and studio operations from its linear networks in a bid to rejuvenate its lagging stock price.
WBD shares closed at $8.34, marking a modest 0.34% rise. However, the media giant’s stock has plummeted from its 52-week high of $14.76, dragging its market cap down to $20.3 billion.
CEO David Zaslav is exploring various strategies, from asset sales to spinning off the movie studio and Max streaming service into a new entity, potentially distancing them from the company’s hefty $40 billion debt load, according to the Financial Times.
This news comes amidst another wave of layoffs at WBD. Jessica Reif Erlich, a veteran media analyst from BofA Global Research, recently urged WBD to take decisive action, whether by selling the business, offloading assets, or seeking a streaming joint venture or merger.
“In our view, the current composition as a consolidated public company is not working,” Erlich noted.
Unlike Paramount Global, which carries $14 billion in long-term debt and might be more appealing to potential buyers like Sony or Skydance Media, WBD’s $39 billion debt is a significant deterrent. Nonetheless, certain assets might attract interest from other media companies.
Although WBD has yet to hire an investment bank to explore a breakup, the company has been consulting with experts to determine the best course for shareholders.
Major investors include John Malone and the Newhouse family. Another option remains for WBD to maintain its current structure.
Last December, WBD held discussions with then-Paramount Global CEO Bob Bakish about a potential merger, but the deal never materialized.
Splitting WBD could see its linear networks retain the debt while the burgeoning OTT service could achieve a higher valuation multiple and invest in growth, as per FT.
WBD, like other major studios, has heavily invested in launching expensive streaming services, dealing with technology issues, high content costs, talent management, and brand repositioning.
Challenges persist with a declining ad market and the lingering effects of Covid-19 and last year’s industry strikes.
This summer, Warner Bros faced box office disappointments with films like Furiosa, Horizon: An American Saga – Chapter One, and The Watchers. However, the spring season brought success with Dune: Part Two and Godzilla x Kong: The New Empire.
Under Zaslav’s leadership, WBD has undergone significant cuts and layoffs to manage its debt. In February, shares dropped 10% after CFO Gunnar Wiedenfels withheld a free cash flow outlook for the year.
As WBD navigates these turbulent waters, its next move could be pivotal in reshaping its future and restoring investor confidence.
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