It became a big talking point across Wednesday afternoon and into Thursday. David Zaslav, the head of Warner Bros. Discovery, had a meeting with Bob Bakish, the CEO of Paramount Global, to discuss a potential merger.
Merger? With shares in each company fluttering across 2023, such a tie-up could happen. But, what would Wall Street think? For MoffettNathanson Senior Analyst Robert Fishman, the analysis was blunt.
“In short, we think these desperate times for media companies are leading them to explore desperate measures,” Fishman concluded, as he examined the “unexpected development” as first reported by respected Axios reporter Sara Fischer. Fischer cited multiple sources about the potential combination of the two companies, including how Paramount+ and Max could be melded into one OTT platform. The meeting “lasted several hours,” and illustrated just how Zaslav seeks to acquire Paramount or perhaps the Redstone family-controlled National Amusements, Inc., the biggest shareholder of Paramount Global.
Such a transaction would also bring together CBS News & Stations and CBS Sports with such cable television assets as TBS, TNT, Discovery, HBO and CNN, which hires Fischer to serve as a contributor.
While regulatory flags could already be going up in and around Washington, and at least one Los Angeles producer tells RBR+TVBR such a merger would be cataclysmic for Hollywood, Fishman questions the timing of the deal and its financial implications.
“We hesitate to see the upside in any transaction for the Paramount company as a whole, especially at its current premium valuation, given the pressures on the linear TV business,” Fishman concludes. “It has been increasingly clear over the past couple of years that
Paramount’s longer-term viability as a standalone company was at risk without any real fix for linear cable networks and negative cash flows.”
Now, with news of the Zaslav meeting with Bakish following a different report earlier this month that Shari Redstone was chatting with David Ellison at Skydance Media about a potential transaction, MoffettNathanson reasons that Ms. Redstone “has finally come to terms with the need to sell.”
One positive to a potential merger is the marriage of CBS Sports and Turner, as its joint venture structure has worked well over the years, Fishman says. As one unit, it would have NFL games, NBA matches and the NCAA March Madness men’s collegiate basketball tournament all in-house.
Then, there is the potential news consolidation — something that would undoubtedly include layoffs, lots of them. For Fishman, “CNN and CBS News would at long last show the power of a combined platform (again with significant cost-savings) after endless speculation about how the two organizations could reshape the news landscape.” That said, “significant cost-savings” would likely come at the expense of many jobs.
Fishman then winds the conversation back toward an “increasing sense of desperation around media,” noting, “As pressure mounts from growing secular linear TV advertising headwinds, cord-cutting acceleration and a weaker macro backdrop putting more burden on sustainable cash flows, and leverage moving in the wrong direction for PARA, we still question why any company would try to catch a falling knife?”
He continues, “What is the rush with the likelihood of waiting for an even cheaper price if a real advertising recession transpires? And even more so for PARA, given its upcoming affiliate fee renewal with Charter in the first half of 2024, wouldn’t any buyer before underwriting any valuation need to see the negative impact on both its linear TV business and whether Paramount+ is forced to be included in a deal without wholesale payment (à la ESPN+ template) due to its ‘cheating’ behavior?”
Whatever happens, nothing is expected to happen before April 8, 2024. That’s when the Reverse Morris Trust two-year window tied to the tax-free Warner Bros. and Discovery merger concludes. Then, all eyes would be on the November 2024 U.S. presidential election, and how it could potentially reshape the FCC should President Biden lose. As of today and across 2024, regulatory review could be challenging.
For Fishman and his team at MoffettNathanson, “We should buckle up for what will likely be endless speculation. The more desperate these media companies and executives get in the weeks and months ahead, the more likely some deal will happen in 2024, even without any fundamental reason for it.”
