Breakingviews: Paramount casts itself in next season’s M&A hit

Merger talks between Paramount Global and Warner Bros Discovery set the scene for future M&A drama. But if Paramount is in play, it’s not clear that WBD boss David Zaslav, or his $28 billion entertainment empire, are best suited for the leading role in a potential deal.

Zaslav and his Paramount counterpart Bob Bakish met this week to discuss a potential tie-up, in talks first reported by Axios. That suggests Paramount’s controlling shareholder Shari Redstone, whose family firm National Amusements owns 77% of Paramount’s voting stock, is open to the idea. She should be: National Amusements took a $125 million capital infusion from investment bank boutique BDT & MSD Partners in May, and weathered a credit-rating downgrade.

There’s some logic to a WBD-Paramount tie-up. Zaslav would gain access to U.S. broadcaster CBS, which recently locked in the right to broadcast National Football League games for the next decade. A combination of Warner Bros, the studio behind “Barbie,” with Paramount, owner of the Mission Impossible and Top Gun franchises, would make it the largest in Hollywood by box office ticket sales this year, according to MoffettNathanson.

But WBD would face competition. Skydance, a firm backed by buyout giant KKR, may be interested in acquiring the $10 billion Paramount, or just the Redstones’ voting stakes, according to a person familiar with the situation. Apple and Amazon.com with their huge appetite for content, would undoubtedly take a close look. And there’s time for an auction. WBD would struggle to close a deal until April anyway, if it wants to fully realize tax perks from the merger that created it in 2022.

Zaslav has some heavy lifting ahead, though. Paramount has lots of debt, and so does WBD. Crunching the two firms together would leave them with net borrowings equivalent to a cumbersome 4.4 times their EBITDA this year, based on LSEG estimates and Breakingviews calculations. They might pay some of that down by selling parts like cable channels MTV and Nickleodeon, but that adds complexity and risk. WBD stock fell 6% on Wednesday.

For now the point is that the word is out: Paramount is on the block, and a takeover of some kind is likely to be one of 2024’s big media-sector nailbiters. Whether Zaslav emerges as the star of that drama, or just an extra, is yet to be seen.