The proposed $111 billion merger between Paramount and Warner Bros. Discovery is nearing completion, but concerns over debt, execution risk and long-term industry instability loom large.
On the latest episode of Variety’s “Strictly Business” podcast, Naveen Sarma, S&P Global’s head of U.S. media and communications, explained the agency’s rationale for the combined company’s credit rating at the time of the merger, and said he believed the company could unlock $6 billion in cost-saving synergies.
“The leverage is quite high on this deal,” he said. “We’ve seen this story before in a number of deals, and we believe this company has the ability to deleverage without making significant cuts at the studio. So we were comfortable with the idea that they could deleverage.”
That said, even if the deal clears regulatory hurdles as early as later this summer, there is considerable skepticism about whether Paramount and WBD can grow with tens of billions of dollars in the way. Even if the Justice Department greenlights the deal, it could face opposition from European regulators and an antitrust lawsuit from California Attorney General Rob Bonta.
The company expects $6 billion in synergies, primarily from technology upgrades, real estate consolidation and operational efficiencies, rather than content spending cuts. However, these savings take time and investment. As Sarma says, “We probably won’t see any cash flow for the next two years.”
Beyond financials, industry-wide headwinds such as the decline of terrestrial television, the evolution of the streaming economy, and the disruptive impact of AI are contributing to S&P’s cautious outlook. While these risks still exist, Sarma believes they are becoming more manageable as studios have stabilized and box office revenues have rebounded slightly.
“Strictly Business” is Variety’s weekly podcast featuring conversations with industry leaders about the business of media and entertainment. (Click here to subscribe to our free newsletter.) New episodes are published every Wednesday and available for download on Apple Podcasts, Amazon Music, Spotify, Google Play, SoundCloud, and more.
