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2024 concerns rise over Paramount-Warner Brothers Discovery merger

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2023-12-21

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It appears to be a case of desperation taking over the infirm, and it's a contender for the "dud deal of 2024" if it materializes. Struggling Paramount, the owner of the Ten Network in Australia, has engaged in talks with the unstable Warner Brothers Discovery (WBD) regarding a potential merger.

Paramount Global CEO, Bob Bakish, and WBD head, David Zaslav, reportedly held discussions at Paramount's corporate headquarters in New York's Times Square, as per US media reports.

Zaslav has also conversed with Shari Redstone, the owner of Paramount's parent company, National Amusements, about the possibility of a deal. As of Wednesday, WBD's market value stood at approximately $29 billion, while Paramount's was just over $10 billion.

Ms. Redstone has been reported to be entertaining offers, or rather expressions of interest, for Paramount, which also holds Channel 5 in the UK, CBS, Showtime, Paramount Studios, and the struggling Paramount+ streaming service.

So, why is this potentially a "dud" deal? The answer lies in WBD's history. It was formed through the merger of Discovery and Warner Brothers in 2021 and 2022, in a deal valued at $43 billion. Despite a 225% rise in WBD shares this year, the market value still falls 32% below the $43 billion mark.

The combined value of these two companies is $39 billion, meaning any deal would have to surpass that threshold. Both WBD and Paramount have incurred significant losses since their respective mergers, including write-downs, asset sales, staff cuts, and other deals, as they attempt to streamline their operations. Furthermore, both companies operate underwhelming streaming services that struggle to compete with giants like Netflix and Disney+.

For WBD, acquiring Paramount may help recoup some of the value lost post-merger with Discovery, but this could result in a "dud deal" if it comes to fruition next year. The Warner Discovery merger is approaching its second anniversary, and under US tax law, WBD can undertake another major acquisition once that date has passed.

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