by Anna Nicolau and James Fontanella-Khan, Financial Times
Warner Bros Discovery's senior management is looking to avoid a break-up of the company as executives race to reverse the Hollywood group's plunging share price, according to people familiar with the matter.
Following a fall of almost 70% in its stock price since WBD was formed in 2022, chief executive David Zaslav and chief financial officer Gunnar Wiedenfels have recently evaluated "all options" to arrest the decline, said two people familiar with the matter.
However, senior executives who carried out a detailed analysis of the consequences of a split have determined that fencing off the group's declining television channels from its streaming and studio business was not the best option at this time, according to people familiar with the discussions.
The Financial Times reported last month that WBD - which owns HBO, the Warner Bros. studio and CNN - was drafting a break-up plan.
But while such a split initially looked "compelling on paper, it would create very significant operational challenges: doing sports rights deals, determining what goes on linear television or what goes on direct to consumer streaming and when," said a person who was involved in the deliberations.
"In the best-case scenario, you'd be dealing with years of legal challenges," the person added. A company spokesperson declined to comment.
Breaking up the storied Hollywood group would be likely to trigger lawsuits from debt investors, while also complicating the use of Warner's content across various platforms and networks, said the people familiar with management's thinking.
A corporate break-up was viewed as the "nuclear option", said another person close to WBD's management, but they cautioned that the situation was fluid and circumstances could change.
Zaslav and Wiedenfels are instead looking to offload smaller assets. They are considering offers to sell Polish broadcaster TVN or a stake in Warner's video games business, which holds valuable intellectual property to Harry Potter games, said people familiar with the matter.
WBD's management hopes investors will remain patient as they work to turn around the company, they said, believing its true market capitalisation should be about $60 billion, or $25 a share, well above the $7.88 at which it closed on Monday.
The group was formed in April 2022 out of a merger that was meant to help two legacy media companies, Discovery and WarnerMedia, compete in a brutal streaming battle with Netflix and Disney.
However, it has struggled to convince Wall Street, which has sliced its valuation and put pressure on WBD's management, to take action. The company is set to report its quarterly earnings on Wednesday. Since the merger, the group has focused on cutting costs and paying off debt, introducing several rounds of lay-offs and selling assets such as All3Media, the UK production company behind Fleabag.
Its news channel, CNN, last month laid off about 100 employees, or 3% of its staff, as part of a digital turnaround strategy.
While WBD's management has been keen to sell assets, the bar for divesting CNN would be "very, very high" because of its strategic importance as well as the tax implications of a deal, said one person familiar with the matter.
This person added that WBD considered it unlikely that there would be an offer compelling enough to offset these concerns.
"Zaslav has also been very clear that he views CNN as a strategic and reputational asset. It is one of the flagship networks that helps us on the affiliate side," they said, referring to the payments cable companies make to television networks to run their programming.
Overall, WBD "should be worth significantly more. It shouldn't take another two to three years to get there," the person said. "But the market is tough right now and a lot of things have to go well."
