Analyst sees 'high' synergy potential amid Warner Bros. Discovery and Paramount merger talks

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Analyst sees 'high' synergy potential amid Warner Bros. Discovery and Paramount merger talks
Credit: © Reuters.
(Updated - December 21, 2023 5:14 AM EST)

Warner Bros. Discovery (NASDAQ: WBD ) shares closed sharply lower on Wednesday after Axios reported the company is engaged in early talks with Paramount Global (PARA) on a potential merger.

Two CEOs reportedly met in New York City, Axios said citing multiple sources.

Paramount shares closed 2% lower.

This proposed merger would create a formidable entity in the news and entertainment sector, potentially catalyzing further consolidation within the industry.

WBD’s CEO David Zaslav with Shari Redstone, the owner of Paramount's parent company, regarding a potential deal.

Warner Bros. Discovery's market value stands at approximately $29 billion, while Paramount's is just over $10 billion, indicating that any merger would not be on equal footing.

The discussions explored avenues for mutual complementarity, with a notable focus on merging the main streaming services of both companies—Paramount+ and Max.

Analysts at Wolfe Research see a "high" synergy potential.

"The combined companies' share of TV, movies, and streaming, according to a recent trade press comment, would exceed 28% and stand above Disney," they said.

"DTC competitiveness requires scale and this deal could eliminate duplicative tech, marketing, overhead, and linear sales. More importantly, the company's enormous share of long-form video would improve its DTC subscriber unit economics (lower SAC, lower churn)."

Analysts at Citi expect leverage to fall if this transaction indeed occurs.

"The ultimate value of WBD will likely turn on the exchange ratio and the magnitude of cost savings," they wrote.

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