Ahead of Buyouts, Warner Bros. Discovery Said to Be “Moving Rapidly” on Synergies

Georg Szalai
·4 min read

Months after its April 8 deal close, the $3 billion in synergies that the new leadership at Warner Bros. Discovery had pledged to find are beginning to come into focus. Senior U.S. leaders in the advertising division were informed that buyouts will be coming, but they haven’t been offered yet, a source confirmed to The Hollywood Reporter.

CEO David Zaslav and CFO Gunnar Wiedenfels have in the past repeatedly pointed to the successful integration of Scripps Networks Interactive — which Discovery acquired in 2018 — as a sign of their team’s readiness to bring together the two companies, take out management layers and cut cost. But they have also emphasized that content is not part of the cost savings game, with the goal being to spend more on content and to spend smarter.

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The newly combined firm is “moving rapidly to capture synergies,” Cowen analyst Doug Creutz wrote in a June 15 report, which noted: “We fully expect the company to achieve its cost synergy targets; the main question is whether it can do so without causing too much disruption to the Warner culture or the content pipeline.”

“Since early April, over 30 senior WarnerMedia executives have departed from Warner Bros. Discovery,” Creutz added. “We are not surprised at the level of turnover, as we expected Discovery management to move quickly, but it has still been striking to watch in real time.” (Plans for ad side buyouts were first reported by The Information.)

Overall, Creutz maintained his “outperform” rating on the stock of Warner Bros. Discovery with a $24 price target. The company’s “valuation looks even more attractive,” he wrote. “Currently, Warner Bros. Discovery shares trade at just 6.0 times our estimated fiscal year 2023 earnings before interest, taxes, depreciation and amortization of about $14 billion, versus 11.6 times for Disney and 9.3 times for Paramount Global.”

Wiedenfels has signaled in the past that he would look for places where operations can be streamlined and costs cut or optimized. One of those areas is ad sales, which employs about 3,000 people worldwide. “I love challenging the status quo,” Wiedenfels told THR last year. “Most things in the status quo are probably not optimal.”

Even when Zaslav unveiled the merged firm’s top executives in April, a range of high-profile managers didn’t make the cut. The crew picked for key roles were set up in a structure that didn’t have the various layers that were prevalent at WarnerMedia, giving execs direct reporting lines and access to the CEO. Since then, more shoes have dropped. For example, Warner Bros. Pictures chief Toby Emmerich recently unveiled plans to exit, followed by Warner Bros. Motion Pictures COO Carolyn Blackwood.

Zaslav and his team are also trying to optimize their new content engine. So there have also been high-profile program cancellations. For example, at HBO series Raised By Wolves was canceled after two seasons, while the planned J.J. Abrams show Demimonde got the plug pulled before making it to air.

Wells Fargo analyst Steven Cahall had in a June 1 report addressed “The Opportunities, the Risks and the Model” of Warner Bros. Discovery, as his title read. “We think Warner Bros. Discovery is a great opportunity for patient investors given excellent content assets and a management track record of merger execution,” he wrote. “Near term, it’s a lot of noise.”

Among other things, the analyst noted: “This management team has experience executing mergers above expectations: the Scripps deal eventually captured  about 35 percent of non-content costs versus Warner Bros. Discovery currently guiding to only about 20 percent (35 percent=$5 billion synergies).”

The Wells Fargo expert also outlined the challenges of all big combinations. “Mega-mergers are never easy given departures, culture clashes and reorganizations, so trying to grow and deleverage while becoming ‘one company’ is a lot to swallow,” he argued. “Our 2023 estimated adjusted earnings before interest, taxes, depreciation and amortization (are) now $12.5 billion, which includes $2.5 billion of synergies and is below the $14 billion target… However, our more granular free cash flow estimates actually improve our conviction in deleveraging within guidance.”

Cahall has an “overweight” rating and $42 price target on the stock. Despite all his confidence, he highlighted: “Financial projections still remain investors’ biggest point of concern, in our view.”

Alex Weprin contributed to this report.

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