Analysis-Comcast’s TV spin hands Paramount more ammunition in its Warner Bros campaign

By Dawn Chmielewski

LOS ANGELES, Jan 7 (Reuters) – Paramount Skydance gained fresh ammunition in its campaign to convince Warner Bros Discovery shareholders that its $108.4 billion bid for the storied Hollywood studio, HBO, and Discovery Channel is the better offer: the market’s response to Comcast’s spin-off.

The cable firm hived off some of its digital assets and TV channels, including CNBC, which started trading on Monday as a separate company, Versant Media. 

Paramount has argued to investors that Versant provides a proxy for Warner Bros Discovery’s cable television networks, which is gearing up to spin off later this year as Discovery Global and could be worth less than $2 a share.

The board unanimously turned down Paramount Skydance’s latest attempt to acquire the studio, saying on Wednesday that the revised $108.4 billion hostile bid amounted to a risky leveraged buyout that investors should reject.

Warner Bros has yet to disclose its valuation for Discovery Global, which includes news network CNN, TNT Sports and the Discovery+ streaming service. In December, Netflix agreed to acquire film and TV studios with entertainment franchises “Harry Potter” and “Friends,” and the streaming service HBO Max, in an $82.7 billion deal, after the Discovery Global separation.

The board told investors Wednesday that the Netflix merger affords Warner Bros’ investors more upside because of the potential options for the television group. Paramount has countered that Discovery Global is worth less. 

Versant’s debut buttresses Paramount’s argument.

At $36.26 a share, Versant is trading at roughly 4-times its estimated pre-tax earnings this year, based on its regulatory filings. 

Applying that same ratio to Discovery Global’s estimated 2026 pre-tax earnings of $5.8 billion would result in a value of approximately less than $2 per share, according to Reuters calculations. That assumes the rest of Warner Bros’ net debt of $20 billion is part of Discovery Global. Netflix agreed to take on $10.7 billion but could take on more of Warner Bros’ leverage, according to a person familiar with the agreement.

When combined with Netflix’s cash and stock offer of $27.75 per share for Warner Bros, the total return is less than Paramount’s $30 a share cash offer, based on this analysis.

Warner Bros has rejected Paramount’s comparisons to Versant, arguing that Discovery Global has greater scale and profitability, is more geographically diverse, holds significant sports rights in the U.S. and internationally, and includes a streaming service, Discovery+, that generates hundreds of millions of dollars in revenue. Investors could be selling shares of Versant because unlike Comcast, it is no longer part of the S&P 500 Index, artificially depressing the share price.

Warner Bros’ seventh largest shareholder, Penwater Capital Management, on Wednesday wrote a letter to the board calling Paramount’s $30 a share bid “superior” and estimating the value of Discovery Global is less than $1.50 per share based on Versant its “closet comparable” the letter said.  

LightShed Partners media analyst Richard Greenfield wrote that using Versant to value Discovery Global is “a false equivalence,” noting that Versant is looking to buy assets and grow, whereas Discovery Global appears to be positioned for sale.

“We believe Discovery Global will be sold and/or broken up after it spins out from WBD, unlocking significant value that far exceeds where the stock would trade as a standalone public company,” Greenfield wrote.

(Reporting by Dawn Chmielewski in Los Angeles; editing Jennifer Saba, Ken Li and Nick Zieminski)