Warner Bros-Paramount merger probability uncertain, says GimmeCredit

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Warner Bros-Paramount merger probability uncertain, says GimmeCredit
Credit: © Reuters.

In a recent report by GimmeCredit, the potential merger between Warner Bros. Discovery (NASDAQ: WBD )
and Paramount Global (PARA) is characterized by significant strategic and financial complexities. While the merger could create a media giant with a vast content library, potentially justifying price hikes in a competitive streaming market, the financial implications are less clear-cut. Warner Bros. is expected to end the year with a leverage ratio of approximately 5x, and Paramount's leverage is even higher. The merger, especially if it includes a cash component, could worsen Warner's financial position initially, despite potential long-term synergies.

The report noted that while the potential synergies from the merger might seem attractive, they usually take several years to materialize. Additionally, the initial costs of integration often surpass the anticipated savings, potentially leading to a short-term decline in profit margins. To mitigate the financial impact of the deal, Warner might consider divesting some of its cable networks to private equity buyers, although the value of these assets appears to be diminishing steadily.

“At this point in time, it is very difficult to determine the probability of a merger going through, as well as any details regarding its structure. We do know that Paramount appears to be a motivated seller given its smaller size and the ownership structure, and some private equity investors are supposedly interested. A proposed deal with Paramount would likely face extensive regulatory scrutiny with the current administration. Warner is still dealing with its own issues, including a likely decline in revenue for 2023,” mentioned in the report.

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