Why Selling CNN Won’t Be Easy for Warner Bros. Discovery | Analysis

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CNN is not for sale, David Zaslav has insisted.

But analysts warn that the CEO of debt-laden Warner Bros. Discovery may not have much choice but to try to sell the asset, however attached to the network he may be. The real question: How hard will it be to get a deal?

The obstacles to a CNN sale are many, from likely regulatory and political blowback, to the most likely buyers facing their own financial challenges — along with the likelihood that Zaslav won’t get the number he needs to make the sale. Yet speculation about a sale seems only to be heating up as the annual Allen & Company conference in Sun Valley approaches next week, a hotbed of media dealmaking.

“Looking at [Warner Bros. Discovery’s] portfolio, CNN seems like the most noncore asset — and if a company is looking to pay down debt that’s where it often looks first for a sale,” Brad Haller, a senior partner in mergers & acquisitions at West Monroe, told TheWrap.

Beyond that, the cable news network has also been a constant source of headaches for Zaslav, with the mogul forced to fire CEO Chris Licht last month after a painful series of missteps — which could be one more rationale for unloading it.

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Fixing CNN — or selling it?

The network has been the object of Zaslav’s intense attention since he took it over a year ago in April. Previous management had ousted one-time Zaslav confidante Jeff Zucker as the network’s CEO, so he handpicked and installed Licht with the goal of turning CNN into less of an “advocacy network” and more equally welcoming for Democrats and Republicans seeking airtime.

But after a year of turmoil that’s included a massive decline in ratings, backlash from a town hall with former President Donald Trump and the ouster of Licht, there have been growing questions as to why Zaslav would want to keep the troublesome cable news network.

The Warner chief is set to join other media moguls in Sun Valley on July 11. Ahead of the Allen & Company event, Puck reported that media bankers are gauging potential buyers’ interest in CNN.

An executive with knowledge of Warner’s thinking insisted that the talk of a sale is misguided. Warner “is not selling it. [CNN] isn’t broken,” said this executive. Zaslav still believes that CNN is a “crown jewel” with a unique global brand and a news-gathering infrastructure that cannot be replicated. The network’s rebound post-Licht in covering the attempted coup in Russia and breaking the audio tape of Donald Trump discussing a classified document proved the point, the executive said.

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Moreover, selling CNN now would make no sense, this person said, despite attempts by bankers to hype the upside. “It’s a buyer’s market. No one’s selling right now,” he said. “It’s got the same challenges every other business has. Media is tough right now.”

While all of that may be true, the chatter in the world of media finance continues.

“The fact that it shuttered tangential CNN assets recently, including CNN+ and CNN Airport, and has experienced high-profile shakeups, including departures from on-air host Don Lemon and CEO Chris Licht, indicate its decision-making time on whether to invest in or divest the company,” said Haller.

The chatter comes as CNN is caught up in the industrywide decline in linear TV watching. At the same time, Zaslav has been slashing costs in an effort to reduce Warner Bros. Discovery’s heavy debt load, which sat at approximately $49.5 billion at the end of March. Those cuts have included layoffs at CNN and the shuttering of CNN+.

The timing, Haller added, “is anyone’s guess, but my bet would be sooner rather than later.”

While a potential sale would help take these problems off Zaslav’s plate, Gerber Kawasaki Management CEO Ross Gerber argues that his recent cost-cutting has done damage to the CNN brand, making it harder, not easier, to sell.

“Zaslav is trying to cut costs so he can pay down debt as quickly as possible… but what he’s doing in cutting all these costs is actually killing [the value of] the assets,” he said.

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How much is CNN worth?

CNN is currently valued at around $5 billion, Bloomberg Intelligence estimates, based on approximately $750 million in EBITDA, per the company’s earnings reports, and $1.75 billion in revenue at a 6.5 times multiple.

A buyer might pay a premium for its well-known brand. “With profits of less than $1 billion and historically low revenue, I don’t think they would be able to fetch more than $10 billion for the asset,” Haller said. Zaslav is believed to seek that kind of outcome in a sale.

Looking ahead, LightShed Partners analyst Rich Greenfield wrote in a recent blog post that he expects CNN to generate upwards of $800 million of EBITDA. That represents about 7% of Warner Bros. Discovery’s earnings before interest, taxes, depreciation and amortization and “an even higher percentage of free cash flow.”

Benchmark analyst Matthew Carrigan said in a Wednesday research note that Warner Bros. Discovery would have to consider “any fully financed mid-single digit billion bid for CNN.”

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Who would buy CNN?

Individuals who have been floated as potential buyers of CNN in recent weeks but haven’t publicly expressed an interest include Zucker, the former CNN CEO; Amazon founder and Washington Post owner Jeff Bezos; and billionaire Bloomberg News owner Michael Bloomberg. Meanwhile, John Catsimatidis, the conservative billionaire owner of the Gristedes supermarket chain, has offered to run CNN for a salary of $1.

If Zucker were to make a bid, such a deal would be problematic from both a political and regulatory perspective given that it would likely involve his firm RedBird Capital’s joint venture with the UAE’s International Media Investments, Carrigan said. The presence of a foreign investor would likely trigger extended regulatory reviews of a potential deal. An individual with knowledge of Zucker’s thinking said he would be interested in buying CNN but doesn’t believe it’s for sale.

It “definitely makes sense for a company that already has a news operation to get CNN,” Bloomberg Intelligence analyst Geetha Ranganathan told TheWrap.

“I’m not sure, given the current media landscape and their own financial pressures, whether it would actually be feasible,” she added. “But I think strategically, it definitely makes sense.”

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Most potential corporate buyers are digesting their own deals and debt.

At a town hall in November, returning CEO Bob Iger said Disney is “very comfortable” with the assets it already has and that there’s “no sense of urgency or even interest right now in acquiring anything more.”

Comcast President Mike Cavanagh told analysts in January the company would be primarily focused on investing in the businesses they already control and operate.

In February, Lachlan Murdoch said that M&A would be an “important part of our toolkit” as Fox deploys capital, though it’s unlikely that the owner of Fox News would want to buy a direct competitor whose audience sits on the polar opposite side of the political spectrum — if regulators would even allow it.

Paramount has been viewed more as an acquisition target than an acquirer, selling real estate and marketing its majority stake in the BET Media Group and its Simon & Schuster book publishing division.

Tech giants like Amazon and Apple could in theory use CNN to beef up their streaming offerings. Microsoft, which previously held a stake in MSNBC, could also shift its focus to the network in the event that its $68.7 billion deal for Activision Blizzard falls through. Regulators have been applying special scrutiny to tech deals, however.

Zaslav notably sounded an alarm about the tech giants in May, warning his fellow legacy media companies that they needed to find their own way to consolidate. But M&A, he noted, “takes time.”

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Enough to make a difference?

Following Licht’s ouster, Zaslav has replaced him with an interim team comprised of CNN executives Amy Entelis, Virginia Moseley and Eric Sherling and Warner Bros. Discovery corporate executive David Leavy.

“My sense is he may keep the interim internal team for the near-term to build some loyalty and steady the ship,” Paul Hardart, a former Warner Bros. executive and clinical professor of marketing at NYU’s Stern School of Business told TheWrap. “Bringing in another outsider at this point would likely be fraught with risk right now, especially as we move into the 2024 election cycle.”

Some proponents of a CNN sale have said the 2024 election, which will juice political revenue, would be an opportune time for Zaslav to make a deal. But Haller argued it would make less sense for a buyer to grab CNN after the election cycle because they wouldn’t be able to capitalize on boosted ratings — and Warner Bros. likely wants to pay down its debt this year or early next, not in 2025.

WBD executives previously said during the company’s first quarter earnings call that they are aiming to lower the company’s debt-to-EBITDA ratio to below four times leverage. While a potential sale would help reduce overall debt, it would also mean giving up the earnings CNN throws off. At Bloomberg Intelligence’s valuation, the after-tax proceeds of a sale wouldn’t meaningfully help the situation.

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What’s next for CNN?

Instead of getting caught up in speculation about a potential sale, Gerber believes Zaslav and CNN leadership should focus on “telling great stories about what’s happening in the news in real time” and bringing the network into the digital age.

During the Max launch event in April, Zaslav touted the company as a global leader in news and sports and told reporters the team would come back in a few months with “details of our attack plan to use this important and differentiating live content to grow our streaming business even further.” Warner executives are weighing a variety of options for incorporating live CNN programming into Max, including some that wouldn’t require the company to renegotiate its existing deals with TV providers, a person familiar with the matter told TheWrap.

Carrigan said live CNN programming would strengthen Max’s appeal, but he thinks Warner Bros. Discovery will ultimately have to “revise cable and satellite carriage agreements” to allow Max to stream CNN’s most popular programming.

Zaslav made it clear when he first orchestrated the deal for Discovery to buy CNN’s parent company that he was interested in the news network. John Malone, the cable investor who has long backed Zaslav, said in 2021 that selling CNN would be “the coward’s way out.” But it may not be cowardice, or the lack thereof, that keeps CNN under Zaslav’s wing for now. It may be sheer pragmatism.

Sharon Waxman contributed to this article.

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