What’s Warner Bros. Discovery’s Path Forward if the Paramount Deal Collapses?

As the $110 billion merger between Warner Bros. Discovery and Paramount remains in legal limbo, the public is debating how crucial each company is for its survival. However, this raises a critical question: what would the company's course be if the deal crumbles? While Warner Bros. Discovery wouldn't be entirely devastated, CEO David Zaslav would receive a $7 billion break-up fee as an independent entity.

Yet, industry experts doubt management would remain solitary due to available M&A options and the deteriorating linear TV business. They predict a return to the planned split to attract another buyer for all or part of the portfolio. Alternatively, they could sell non-core assets or monetize intellectual property through licensing, which would help offset any potential operating benefits of staying united, according to Morningstar Research analyst Matthew Dolgin.

Despite the breakup fee and improving leverage, the company would remain financially challenging due to debt and the declining linear TV business. Its stock price may also plummet, incentivizing management to seek M&A opportunities. A split could entail restructuring costs and potential asset sales, but potential buyers like Netflix, Apple, and Amazon may show interest in the studio and streaming business.

Meanwhile, the cable networks could be sold piecemeal or together to strategic players like Nexstar Media Group or private equity firms. Experts agree that the time to split was yesterday and that the split's economics aren't getting better as linear TV shrinks, making piecemeal sales more likely than a new big deal.