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Warner Bros Discovery’s senior management is looking to avoid a breakup as executives race to reverse the Hollywood conglomerate’s plunging stock price, according to people familiar with the matter.
After the stock price fell nearly 70 percent since WBD set to be founded in 2022, CEO David Zaslav and CFO Gunnar Wiedenfels have recently been evaluating “all options” to stem the decline, two people familiar with the matter said.
However, senior executives who conducted a detailed analysis of the consequences of a split determined that preventing the group’s decline television Channels from the streaming and studio businesses are not the best options at this point, according to people familiar with the discussions.
Last month, the Financial Times reported that WBD — which owns HBO, Warner Bros. and CNN — had draft a separation plan.
But while such a split might initially seem “attractive in theory,” it would create very significant operational challenges: working out sports rights deals, determining what goes linearly [television] or what is going on [direct to consumer streaming] and when,” said one person involved in the discussion.
“In the best case scenario, you will face years of legal challenges,” he added.
A company spokesman declined to comment.
People familiar with management’s thinking say breaking up the sprawling Hollywood conglomerate could trigger lawsuits from debt investors and complicate the use of Warner’s content across multiple platforms and networks.
Another person close to WBD’s management said a split was seen as the “nuclear option”, but cautioned that the situation was uncertain and circumstances could change.
Zaslav and Wiedenfels are instead looking to offload smaller assets. They are weighing offers to sell Polish broadcaster TVN or a stake in Warner’s video game business, which holds valuable intellectual property for the Harry Potter games, people familiar with the matter said.
WBD management hopes investors will be patient as it works to turn the company around, it said, believing the company’s true market capitalization should be around $60 billion, or $25 a share, well above its $7.88 closing price on Monday. WBD shares fell another 5 percent in late morning trading Tuesday.
The group was formed in April 2022 following a merger aimed at helping legacy media companies Discovery and WarnerMedia compete in the fierce streaming war with Netflix and Disney.
But the company has struggled to convince Wall Street, which has slashed its valuation and pressured WBD management to act. The company is scheduled to report quarterly earnings on Wednesday.
Since the merger, the group has focused on cutting costs and paying down debt, making several rounds of layoffs and selling assets such as All3Media, the British production company behind Vermin.
Its news channel, CNN, last month fired about 100 employees, or 3 percent of the company’s workforce, as part of a digital transformation strategy. While WBD’s management is keen to sell the assets, the hurdle to divesting CNN would be “very, very high” given the strategic importance of the company and the tax implications of a deal, a person familiar with the matter said.
The WBD believes it is unlikely that any offer will be attractive enough to address these concerns, the person added.
“[Zaslav] It’s also very clear that he sees CNN as a strategic and prestigious asset. It’s one of the top networks that helps us in terms of affiliation,” they said, referring to the payments that cable companies make to television networks to carry their programming.
Overall, WBD “will be worth significantly more. It won’t take another two to three years to get there,” the person said. “But the market is tough right now and a lot of things have to go right.”
