How much are Warner Bros. Discovery’s cable networks worth?
Nothing, says Paramount Skydance, the company trying to buy them.
Paramount said in a letter on Thursday that it valued WBD’s cable TV networks at $0.00 per share, when including expected debt and other costs. The letter came a day after WBD rebuffed Paramount’s attempted acquisition for an eighth time in favor of Netflix’s offer.
In the letter, Paramount acknowledged “the theoretical possibility” that WBD’s cable assets “could trade with up to ~$0.50 per share” of value.
A lower valuation for WBD’s cable networks would make Paramount’s hostile $30-per-share offer for all of WBD appear more favorable compared to Netflix’s bid, which is $27.75 per share in cash and stock for just the streaming and studio assets, such as WBD’s studio, HBO, and HBO Max. Netflix’s bid excludes the cable TV networks.
The lower the value of Discovery Global — the division that houses the cable TV networks — the more compelling Paramount’s proposal appears.
Paramount has provided several assessments of Discovery Global’s value, but none as pessimistic as the one delivered on Thursday.
During the bidding war with Netflix, Paramount publicly floated a $1-per-share value on a few occasions. Then, in an SEC filing on December 22, Paramount said Discovery Global could be worth $1.40 per share based on a Wall Street consensus of the pre-launch value of Versant, a new cable TV company spun off of Comcast.
Paramount’s new analysis is based on the poor stock performance of Versant since its start of trading on Monday, as well as the high debt load that Discovery Global would carry. Versant shares have lost more than a quarter of their value in their opening days, in part because large funds that own Comcast were forced to sell their stakes.
Based on Versant’s valuation on Wednesday, WBD’s networks could be worth about $1.20 about per share, a Business Insider analysis found.
Media analysts have cited Versant as a comparison for what WBD’s cable networks would be worth on their own, given the similarities in their asset mixes. Versant owns CNBC, MS NOW (previously MSNBC), and live sports rights through USA Network, while Discovery Global has cable networks like CNN, TNT, and TruTV.
However, WBD talked down similarities between Versant and its TV networks in its shareholder letter on Wednesday, arguing that its cable assets have “greater scale and profits, with a geographically diversified footprint and strong international presence.”
Others agree. Rich Greenfield, a media analyst at Lightshed Partners, said comparisons between Discovery Global and Versantʼs valuations are “a false equivalence” in a Wednesday note, arguing that WBD’s cable assets are more valuable.
That undercuts Paramount’s argument.
“While Paramount keeps talking about Discovery Global being worth $1 or less per WBD share based on Versant, the WBD Board appears confident that it can generate value that is likely at least 4-5x greater than that if not substantially more through a strategic review process,” Greenfield wrote.
Paramount has been trying to convince WBD shareholders that its all-cash offer is for more money with less risk than WBD’s Netflix arrangement. It’s also tried to fix the issues WBD cited with its bid, in part by having Larry Ellison, the Oracle cofounder and father of Paramount CEO David Ellison, backstop $40.4 billion of its equity.
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