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When will the clock run out on David Zaslav? The Financial Times has reported that Warner Bros Discovery, the media conglomerate assembled just two years ago by Zaslav, its chief executive, could seek a break-up. The most dramatic option is to create two companies with very distinct growth and profit profiles.
It is all exhausting. Zaslav famously is known for taking home big paychecks — and more recently for offending everyone in sight. Stockholders have seen shares fall nearly 70 per cent in those 27 months. Customers do not like content disappearing from their streaming apps. And the talent, including Charles Barkley of professional basketball fame, wonder if his mismanagement is going to cost them their jobs. At some point Zaslav must be accountable.
The idea of a separation would be to put the low-growth but cash-generative cable TV stations, including TNT and CNN, into a company that takes on most of WBD’s $39bn of net debt. Bondholders will seethe and perhaps sue. A creditor war has erupted at Lionsgate, the Hollywood studio that recently spun off the cable network Starz and tried a similar debt shell game to the one that WBD is contemplating.
CreditSights, the research firm, wonders if such a move could pass muster given that a major asset disposal is still prohibited by bond indentures. But the debt contracts were struck in a pretty loose era for a solidly investment grade company. WBD, at the very least, might be able to get creditors to take haircuts in debt exchanges.
The WBD streaming business, which only recently turned profitable, would be largely debt-free and could supposedly get a Netflix-like valuation. Alternatively, it could cleanly combine with some other digital also-ran. In investment banking logic, 1 + 1 will then equal 3. But that looks tricky: four times debt to ebitda is immutable.
Zaslav is not the only media mogul struggling in this time of high interest rates and technological upheaval. The pie is shrinking and chief executives are making tough choices on allocating capital and enterprise value. Creditor skirmishes are already flaring up at the likes of Dish Network and Altice. Managers are resorting to the bromide that their duties are to shareholders not creditors. That is simply a damning albeit tacit admission of how far their efforts have fallen short.
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