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- Monday is an important day for Warner Bros. Discovery: It can now sell itself without a tax penalty.
- The media industry — including WBD executives — believes consolidation is inevitable.
- But for now, very little M&A has been happening, for a couple of reasons.
You are a normal person, so you think that Monday is Eclipse Day.
But if you're a media investor, banker, or someone who thinks like them, there's a different significance: It's the End of Warner Bros. Discovery's Reverse Morris Trust Restrictions Day!
Let's put that in English: Monday is the second anniversary of the deal that combined Discovery Networks with WarnerMedia, the conglomerate that includes HBO and CNN and was previously owned by AT&T. That merger was accomplished using an obscure structure that minimized taxes on the transaction — but essentially prevented the combined company from buying or selling anything without a huge tax penalty.
Now those restrictions are gone, so Warner Bros. Discovery is officially in play.
Except … maybe it's not going anywhere, just yet.
When WBD was first put together, the conventional wisdom was that the media industry would be going through rounds of consolidation and that WBD would eventually be buying or merging with smaller companies or selling to a bigger one — likely Comcast.
But so far we've seen very little buying and selling of big media assets, even though everyone from the Discovery investor John Malone on down seems to believe it's inevitable.
The most obvious reason: As the entire TV and movie industry looks like it's shrinking or worse, investors aren't sure why combining two declining assets will end up creating anything but … a larger declining asset.
That's presumably why investors immediately soured on the idea of a tie-up between WBD and Paramount when that deal got floated late last year. (That trepidation also helps explain why there have been so few bidders for Paramount, which now looks set to sell to a company controlled by David Ellison, the son of the billionaire Larry Ellison.)
There's also the question of who, if anyone, will be allowed to buy a big media asset in 2024, when President Joe Biden's antitrust enforcers have made it clear they're wary of consolidation in general and in media and tech consolidation, specifically. (Recent reminders, if you need them: Earlier this month, two members of WBD's board of directors left those seats after a federal antitrust probe — the same day the antitrust enforcer Lina Khan dropped by Jon Stewart's show to talk about "the dangers of what happens when you concentrate so much power and so much decision-making in a small number of companies." Point taken!)
All of which helps explain why WBD's stock has dropped by an astonishing 77% since the deal was first announced in May 2021. If investors truly thought Comcast, or someone else, was going to bid for WBD around now, you might see that stock price ticking up. It's going the other way.
So if no one is going to buy WBD anytime soon, what about parts of WBD? That prospect has been around forever, dating back through multiple owners and name changes: Back when WarnerMedia was called Time Warner, it considered selling off HBO to Apple; back when it was owned by AT&T, it thought about selling off its video-game business. And there has been perpetual speculation about CNN combining with … someone … for a very long time.
WBD executives, meanwhile, insist that they don't want to sell any of their stuff. But they also have tens of billions in debt to service, so a big sale might end up being tempting one day, after all. And now, at least, they can go ahead and do it without worrying about taxes.