David Ellison’s Skydance Media completed its $8 billion acquisition of Paramount Global five weeks ago. Now, before Ellison and his team finish their work laying off more than 2,000 employees at the newly fused Paramount Skydance, the tech-heavy Larry Ellison son is now garnering the Warner Bros discovery, grasping a $70 billion plus deal.
The question is, why now?
Doesn’t it make sense to wait until the WBD is split in half? It forms Warner Bros. (HBO Max and Studios) and Discovery Global (TV Network). WBD separation is designed to increase the value of streaming and studio business by shaking open the declining television arm. Paramount Skydance can play standalone Warner Bros. without assuming the package (including the majority of WBD debt) of entities that house CNN, TNT, TBS, discovery and other nets. Also, through a contract with Standalone Warner Bros., Paramount Skydance will gain HBO Max, the leading growth driver for the future. (Minded HBO Max-Paramount+ could be rebranded.)
One possibility is that M&A play backed by WBD’s Larry Ellison has always been part of the SkyDance strategy. The idea is to “integrate media assets during periods of industry-wide instability and build conglomerates with streaming first focus wrapped in television and film studios, and a larger linear television portfolio,” wrote Robert Fishman, analyst at Moffettnathanson, on Thursday.
And the advantage of moving now “is likely to preempt the potential bid war after the split of Warner Bros. Streaming & Studio Assets,” Fishman noted. “By acting now, (Paramount Skydance) is positioning itself to secure the entire company before its rivals cherry-pick the most attractive assets.”
Indeed, before Wallgo Skydance prepared for the WBD bid first reported by the Wall Street Journal, Steven Cahall of Wells Fargo Media Analyst issued a memo saying he had pegged future Standalone Warner Bros. as a “attractive M&A candidate.”
On the isolated Warner Bros. streaming and studio business, Cahall wrote: Analysts confirmed that Netflix has not had any major M&A deals historically. However, he opined that the acquisition of Warner Bros.’s Netflix has many advantages, including the ability to “kickstart” streamer theatrical strategy, expand video games, and “most importantly provide premium content to its members.” Cahall calculated the value of Standalone Warner Bros. for approximately $65 billion.
Certainly, the Paramount Skydance offer to Warner Bros Discovery will face major financial and regulatory obstacles.
WBD’s market value has reached $40 billion after shares in Warner Bros Discovery zoomed up 29% on potential Paramount bids. Adding the debt (minus cash equivalents), Warner Bros Discovery currently has a corporate value of approximately $71 billion. And that’s a much bigger price than Ellison paid for a swing at Skydance Paramount.
“We consider WBD’s high debt leverage to be a barrier to high bids in WBD’s stock,” said Kenneth Leon, director of industry and equity research at CFRA Research in a note on September 11th. He suggested that even if Paramount Skydance wins a contract with the entire Warner Bros Discovery, he would “have only interest in the business of becoming Warner Bros. and would not see meaningful value creation from the Discovery Global Media Portfolio.”
However, Moffettnathanson’s Fishman speculated that Paramount Skydance could benefit greatly from pooling WBD and TV business. “Overall, we expect a synergistic effect of material costs from overlapping cable networks,” he wrote – i.e., layoffs. Fishman added that “combining the long-term existing partnership between CBS News and CNN, CBS and Turner with NCAA’s March Madness Final Four will likely provide a high level of synergy.
Next comes the question of whether Paramount-WBD’s partnership can be obtained with regulatory approval, as it represents a more horizontal combination of the two Media Giants than SkyDance-Paramount. Skydance is primarily a production company and has limited overlap with Paramount Global.
Already, it was Sen. Elizabeth Warren (D. Massachusetts) who came out against the concept that combined Paramount Warner’s Brothers discoveries. He wrote in a post on Thursday in X that such media mergers “must be blocked as dangerous concentration.”
The Trump administration surprised the Skydance-Paramount merger after Skydance made important concessions to the FCC. However, Warren and others settled the lawsuit, claiming Paramount Global’s $16 million payment to Trump (which claims that CBS News’ “60 Minutes” was a seemingly compilation of an interview with then-VP Kamala Harris) was a “brief bribe” to get Trump’s blessings. “Remember when Trump announced a multi-million-dollar secret deal with CEO David Ellison? And shocking – Trump has approved Ellison to buy CBS/Paramount,” Warren wrote in the post. “Now, Ellison wants to take over CNN/Warner Bros.” (Skydance and Paramount said he is complying with all U.S. laws through the merger process, including the Anti-Brilly Act.)
Whatever scenario unfolds in the end, Zaslav will see at first glance his wish for mediabiz integration come true.
After Trump was elected for a second term in November 2024, Zaslav expressed optimism, and the new administration will promote industrial M&A. Trump 2.0 said it “may provide opportunities for integration that may be completely different from the pace of change,” and it “has a genuine positive, accelerated impact on the industry that is needed.”
