Exploring a Potential Merger: Warner Bros Discovery and Paramount CEOs in Discussion

Warner Bros. Discovery CEO David Zaslav met with Paramount Global CEO Bob Bakish on Tuesday to discuss a potential merger between the two companies, according to sources familiar with the matter. If the merger were to happen, it would create an entertainment and news powerhouse, bringing together Warner Bros. and Paramount studios, as well as CBS, CNN, and other cable television assets.

The lunch discussion, initially reported by Axios, occurred at Paramount's global headquarters in Times Square, New York City. Representatives for Warner Bros. Discovery and Paramount chose not to provide a comment.

The potential merger of the two studios could shake up the media industry once again, but the talks are not entirely unexpected. Zaslav, known for his successful acquisitions at Discovery, has been discussing the possibility of acquiring more assets to enhance Warner Bros. Discoverys content offerings.

On the other hand, Paramount is seeking a strategic partner to navigate the current media landscape. Shari Redstone, the heiress of Paramount's parent company National Amusements, has been reportedly in discussions to sell her stake in the company.

Someone familiar with the situation has verified that Zaslav has discussed a potential agreement with Redstone.

Industry experts predict that there will be ongoing consolidation in the media industry as traditional entertainment companies expand their efforts to compete with tech giants in Silicon Valley, who are increasingly entering the content space.

Challenges ahead

Despite the report, investors showed discontent as Warner Bros. Discovery (WBD) saw a 5.7% drop in stock immediately after publication, with a further 1.4% decrease in after-hours trading. Conversely, Paramount's stock initially rose on the report but ultimately ended the day down by almost 1%.

Both companies are confronted with major challenges in an ever-changing media landscape. As linear television ratings continue to decline due to the increasing number of cable customers cutting the cord, the advertising market is moving toward streaming platforms. While this shift has led to an increase in subscriptions and a decrease in losses, both companies are still experiencing significant financial losses due to rising content costs for their Paramount+ and Max services. With expensive new contracts being reached with writers and actors in recent months, these services are not expected to become any more cost-effective in the near future.

Both companies are burdened with immense debt, with Warner Bros. Discovery successfully demonstrating its ability to reduce its debt burden, though it still maintains a significant $45.1 billion in debt as of the end of the third quarter, down from $49.3 billion at the start of 2023. Zaslav's effective debt reduction strategy is a key factor in WBD's 23% stock increase this year, outperforming Disney's 5% increase and Paramount's 8% decrease.

Acquiring Paramount would not aid Zaslav's attempt to reduce its debt load, as the company currently carries $15.7 billion in debt, a figure that has remained virtually unchanged throughout the year.

This is not an ideal moment to assume more debt, considering that the US Federal Reserve has raised rates to their highest level in two decades. Additionally, US Treasury yields, which impact debt repayment rates, are also quite high. However, there is potential for relief in the future: the Fed recently indicated its plans to start reducing rates next year, and Treasury yields have started to decrease as well.

Paramount wants a sale

Zaslav is not the only one vying for Paramount. In recent weeks, Redstone has hinted at her desire to sell a majority stake in National Amusements and has been collaborating with banker Byron Trott to explore the potential details of such a transaction. Other potential buyers reportedly interested in acquiring Redstone's stake include David Ellison of Skydance and Gerry Cardinale of RedBird Capital.

For several decades, Paramount has been owned by the Redstone family, after Sumner Redstone acquired the company for $10 billion in 1994, and later bought CBS for $37.3 billion in 1999. As her father's health declined, Shari Redstone fought to maintain the family's controlling interest. In 2018, CBS sued Shari in an attempt to take control away from her, but she won the lawsuit. After Sumner's death in 2020, his shares were placed in a seven-person trust, with Shari in charge of National Amusements.

National Amusements holds a 77.4% stake in Paramount's common stock, which has a market capitalization exceeding $10 billion. This story has been revised to include new developments and background information.

CNNs Liam Reilly contributed to this report.