Breakingviews - WBD boss David Zaslav reprises Elmer Fudd act
WBD unveiled plans to separate, opens new tab its streaming services and film studio from its cable networks into two publicly traded entities. The legacy TV business will keep up to a 20% stake in its sister company, which Zaslav will run.
The breakup became practically inevitable almost immediately after the ink dried on Discovery's $43 billion merger, opens new tab with WarnerMedia in 2022, which followed the $15 billion takeover, opens new tab of Scripps five years earlier. Building a successful TV, film and video-streaming behemoth proved as elusive as wascally wabbits. Netflix (NFLX.O), opens new tab, YouTube and others were too hard to catch. Zaslav fell $4 billion short of his $14 billion EBITDA target in 2023 and didn't even come close to the sum the next year either.
About $34 billion of net debt complicates the breakup. Details have not yet been disclosed, but Chief Financial Officer Gunnar Wiedenfels said a majority of it is destined for the cable networks outfit that he will lead, while the streaming arm will keep a 'not insignificant' amount.
Zaslav is trying to pare down the amount by offering to buy back as much as $15 billion of it at a premium to where it had been trading pre-announcement, backed by a new term loan from JPMorgan. Under the terms, creditors who don't participate in the cash tender over the next month will be left with unsecured holdings that may get knocked further down the capital structure. It's unlikely that this bit of financial engineering will help with the next, as both companies are still apt to be heavily indebted.
WBD shareholders have become exasperated with Zaslav's cartoonish antics. With a stock price that has tumbled from about $30 to below $10 over the past four or so years, they rejected his lavish $52 million pay package. He may yet orchestrate another deal or two, perhaps finding buyers for each of the companies if he manages to pull off the split. Given his past performance, however, there may be more hare-brained ideas along the way.
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