Warner Bros. Discovery and Paramount CEOs discuss possible merger

By Oliver Darcy, David Goldman, Liam Reilly and Jon Passantino, CNN

(CNN) — Warner Bros. Discovery Chief Executive David Zaslav met on Tuesday with Paramount Global Chief Executive Bob Bakish, and they broached a potential merger between the two companies, two people familiar with the matter told CNN.

A potential merger of the two media giants would create an entertainment and news juggernaut, encompassing Warner Bros. and Paramount studios as well as CBS, CNN, and other cable television assets.

The discussion over lunch, which was first reported by Axios, took place at Paramount’s global headquarters in New York City’s Times Square.

Spokespeople for Warner Bros. Discovery and Paramount declined to comment.

Still, Warner Bros. Discovery cannot for the time being enter into a transaction with Paramount, or any other entity, until an arcane tax statute prohibiting Zaslav from additional acquisitions or mergers ends in April 2024.

The date, which marks the two-year anniversary of WarnerMedia’s $43 billion merger with Discovery, was agreed upon during the deal to secure tax advantages — and should Warner Bros. Discovery elect to engage in a merger ahead of the April date, it will face major tax implications.

While a potential merger between the two studios could once again upend the media industry, the talks aren’t a complete surprise. Zaslav, who executed a number of acquisitions at Discovery, has talked in recent months about going shopping for additional assets to boost Warner Bros. Discovery’s content offerings.

Meanwhile, Paramount is in need of a strategic partner to survive in the current media landscape. Shari Redstone, the family heiress of Paramount’s parent company, National Amusements, has reportedly been in talks to sell her stake in the company.

A person familiar with the matter confirmed that Zaslav has spoken to Redstone about a possible deal.

Analysts expect consolidation in the media business to continue as legacy entertainment companies bulk up in their efforts to compete with tech titans in Silicon Valley, which are increasingly wading into the content space.

Investors weren’t happy, though: Warner Bros. Discovery’s (WBD) stock fell immediately after Axios published its report and ended the day down 5.7%. It fell another 1.4% in after-hours trading. Paramount’s stock rose initially on the report but was a little less than 1% lower after hours.

The move to rapidly consolidate across the media industry comes as the once-formidable studios recalibrate their revenue strategies to compete against Netflix in the streaming era.

“I think it speaks to the panic,” industry analyst Rich Greenfield, co-founder of LightShed Partners, told CNN on Wednesday about the merger talks. “The industry is in for a very challenging future. They’re going to try to get bigger to compete in streaming.”

But any tie up between the media giants could also run into regulatory hurdles. The Biden administration has shown resistance to consolidation, challenging a record number of proposed mergers and acquisitions, according to a recent Federal Trade Commission report.

Challenges ahead

Both companies face significant challenges in a rapidly shifting media environment. Linear television ratings are in decline as cable customers increasingly cut the cord.

The advertising market is shifting to streaming, which has helped boost subscriptions and stem losses – but both companies are still shedding huge sums of money on their Paramount+ and Max services as content costs rise. Those services won’t get any cheaper after studios reached expensive new contracts with writers and actors over the past few months.

The companies are also both saddled with enormous amounts of debt. Warner Bros. Discovery has been cutting costs and impressing Wall Street with its ability to unload its debt burden – but it still held a stunning $45.1 billion at the end of the third quarter, down from $49.3 billion at the start of 2023.

Zaslav’s success shedding debt is one of the primary reasons WBD’s stock is up 23% this year. By comparison, Disney is up just 5%, and Paramount has fallen 8%.

Buying Paramount would not help Zaslav’s effort to unwind its debt burden: Paramount has $15.7 billion in debt, a total that has barely budged all year.

It’s not exactly the best time to be taking on more debt. The US Federal Reserve has hiked rates to a two-decade high, and US Treasury yields, which influence debt repayment rates, are very high, too. There could be some relief in the future, though: The Fed last week signaled it would begin cutting rates next year, and Treasury yields have begun to come back down to earth.

Paramount wants a sale

Zaslav is hardly the only one courting Paramount. Redstone has in recent weeks teased her interest in offloading a controlling stake in National Amusements and has been working with a banker, Byron Trott, to chart out what that might look like. Other suitors reportedly looking to acquire Redstone’s stake include David Ellison at Skydance and Gerry Cardinale at RedBird Capital.

Paramount has resided with the Redstone family for several decades, after Shari’s father, Sumner Redstone, acquired Paramount for $10 billion in 1994 and, subsequently, CBS for $37.3 billion in 1999.

As her father’s health began to deteriorate, Shari fought to retain the family’s controlling interest. CBS eventually sued Shari in 2018 in a bid to wrest control away from her. Shari won the suit and, following Sumner’s death in 2020, his shares entered a seven-person trust, which placed Shari in charge of National Amusements.

Paramount has said that National Amusements owns some 77.4% of Paramount’s common stock. Paramount is estimated to have a market cap worth over $10 billion.

This story has been updated with additional developments and context.

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CNN’s Liam Reilly contributed to this report.