Debt Reduction, Cost Cuts in Spotlight as PSKY & WBD Ready Merger

Alex Coffey (0:00)

Welcome back to Next Gen Investing. I'm Alex Coffey. And we now welcome in our next guest. That's Seth Schachner, the host of Breaking Down the Biz podcast and managing director at Strat America. Seth, good afternoon to you. Now, this Warner Bros. Paramount has been a saga of its own and seems like we've kind of cleared some pretty significant regulatory and I guess judicial kind of hangups here.

Based on that, I guess, what stands out most about this perspective combined business now going forward?

Seth Schachner (0:38)

Hey, Alex, good to be here. Yeah, it's hard to ignore the process that led up to this stuff.

What stands out most to a lot of us today watching it isn't really the going forward, it's kind of the massive cave that happened I think on the part of the state regulators and in kind of allowing this thing to be put together without a lot of sort of things being attached to it to kind of ensure competitiveness. I don't know if they completely dropped the concerns that were holding the thing up in terms of concentration and competition, but boy, they didn't really do a lot. I think they wanted to keep it here in California, at least the headquarters on it. So that's probably the biggest thing today. But I mean, going forward, you're putting two, not identical, but two pretty massive and similar studios with TV operations together. And so there's an enormous amount of debt, I think it's $79 billion, and there's I think $6 billion in cost cuts that are in that business plan. And so I mean, the outlook is gonna be to me about debt reduction and cost cutting, I think probably most importantly, and how you put together a merger that manages these two massive companies being put together without a lot of disruption on the creative side.

Those are probably the biggest things that I'm thinking about right now, just it's so fresh.

Alex Coffey (2:01)

Yeah, when you look at sort of the, I guess you've kind of framed it as caving, or let's just say like whatever they settled on in the end, was there a surprise there? Was the timing of it a surprise? I know they had sort of that, I don't know whether it was October 1st or November 1st, there was that sort of, you know, slow drip that they were going to have to contend with. So I think there was probably a thought that settlement was coming at some point. Are you surprised by the timing? And then are you surprised by actually what it was?

Seth Schachner (2:32)

Yeah, I mean, I was definitely surprised on the latter. I mean, look, I think there was, if you listen to what I think Attorney General Bonta had said like just two weeks ago and how tough the stance was, and then what was announced over the last week, just over the weekend, there are very, really big differences. So one could say, hey, what's going on? And what's actually in the settlement? Because it feels like a nothing burger to me in terms of the settlement piece of it. So yeah, that part is kind of surprising. I would have thought that there was gonna be some assets sold, maybe CNN would be sold, and really nothing. And I think a big part of the concern here, which was maybe surprising, is that there was an actual threat to move the headquarters of these companies out of the state, maybe to Nashville or other places. And I don't think any of the leaders here, this is more political than business, want that on the resume to see that happening. So that was probably driving this more than anything, basically, to keep it here. They are gonna keep the headquarters here. I think there's a promise not to sell either the two studio lots for five years, and the terms of the agreement run for five years, but they could still move their headquarters, I guess, if they wanted to. So I think the surprise was that I think there were a lot of parties, and you're seeing that here with, you know, different creative coalitions kind of piping up and protesting, who were expecting to see something substantive come out of the settlement in terms of pieces being pulled out.

But that really hasn't happened.

Alex Coffey (4:03)

So Seth, you kind of eluded to this. A big part of it was maybe trying to maintain some of those jobs, particularly in California specifically. But you talked about cost cutting. To me, cost cutting in the combination of two similar businesses to kind of discuss how you are framing how you did. One of the clearest ways is, you know, layoffs.