People familiar with the matter said chief executive David Zaslav was examining several strategic options, ranging from selling assets to hiving off its Warner Bros movie studio and Max streaming service into a new company unburdened by most of the group’s current $39bn net debt load.
WBD, whose market capitalisation has fallen by a third to about $20bn in the past year, has yet to hire an investment bank to initiate any specific transaction, but its top management has been talking to advisers to find a solution in shareholders’ best interest, people briefed on the matter said.
WBD’s biggest backers include cable billionaire John Malone and the Newhouse family, which controls Condé Nast.
People close to WBD have also informally approached advisers to rival media groups to understand if they would be interested in exploring M&A options with some of its existing assets, one person said.
WBD reportedly considered earlier combinations with both Comcast’s NBCUniversal and Paramount, which has since agreed to sell itself David Ellison’s Skydance studio. Both have legacy television assets and subscale streaming platforms.
WBD declined to comment. People familiar with the matter said WBD could still ultimately decide to continue operating as it is currently structured.
A break-up appears to be the strongest option, these people said, and most of its debt could remain with the mature pay-TV networks business in such a scenario. That could help the faster-growing streaming spin-off achieve a higher valuation multiple, but one person familiar with the matter said WBD’s management was aware of the risk of crossing creditors.
Analysts at Bank of America have warned that such a split could have a “potentially devastating” impact on bondholders, and WBD rival Lionsgate recently faced a creditor revolt after separating its Starz pay-TV network. A person involved in the discussions noted that WBD’s debt was raised in a lenient environment with few covenants preventing such financial engineering.
The “strategic spin-off” idea under consideration would create a company made up of WBD’s legacy television assets, which have experienced a decline in revenues despite still generating most of its cash flow. Much of WBD’s heavy debt load would be housed in the TV group, leaving the faster-growing streaming and studio business with fewer borrowings and more flexibility to invest in growth.
The discussions reflect wider concerns about WBD, whose shares have fallen by about 70 per cent since AT&T spun off Warner Bros and it merged with Discovery two years ago. They have been hit by a cratering advertising market, the high costs of developing its streaming offering, the Covid-19 pandemic, Hollywood strikes and some expensive flops.
WBD has slashed costs and paid down debt, but in February the stock dropped 10 per cent after its chief financial officer said he could not give projections for free cash flow this year.
BofA analyst Jessica Reif Ehrlich wrote this week that WBD’s “current composition as a consolidated public company is not working”. It should explore asset sales, restructuring and mergers, she argued, even as she acknowledged that the potential for a creditor backlash to a spin-off meant “the optics are not ideal”.
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