According to Axios, Warner Brothers Discovery (Ticker: WBD) and Paramount (Ticker: PARA) heads met to discuss a potential merger. The process is very early, and there’s a very good chance that this doesn’t amount to anything, but as a shareholder in Warner Brothers Discovery, I wanted to give my thoughts.
Looking at this potential deal from Warner Brothers Discovery’s point of view, this makes sense for several reasons. One, this would make them a lot bigger and better position them to compete with Disney and Netflix. Two, this would give them access to very big IP (Intellectual property) to fuel their content library. Three, Paramount owns a lot of kid shows which would help Warner Brothers Discovery tap into that market.
This also makes sense for Paramount. Paramount needs to get acquired. They’re in a lot of debt. They currently have a market cap of around $10 billion and $15 billion worth of debt. They have been in talks about an acquisition and a merger with Warner Brothers Discovery would make sense for them.
The issue is that Warner Brothers Discovery also has a lot of debt. They currently have $43 billion worth of debt in fact. They have been paying their debt down as they have gone from $55 billion to $43 billion, but they obviously still have a lot of debt. Merging with Paramount could cause a lot of problems for them. It could hurt their credit rating and some of that debt could become immediately redeemable.
In summary, as a Warner Brothers Discovery shareholder, I like the idea of a merger between these two companies as it would create a very strong company content wise. I am, however, nervous about the idea of this happening from a financial standpoint concerning debt.
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