Warner Bros. Discovery Plans 20% Spin-Off Sale to Reduce Debt

Warner Bros. Discovery (WBD.US) is in the process of implementing a spin-off plan, which may involve selling 20% of its film and television studio and streaming business before the completion of the spin-off next year. The Chief Financial Officer (CFO) stated at a recent conference that the company is seeking to achieve full value for these assets. Multiple institutional investors have already shown interest in the investment, with the goal of completing the spin-off by the second quarter of next year.

The spin-off plan involves separating the company into two entities: "Discovery Global," which will retain traditional television and digital networks, and "Warner Bros.," which will include the film and television studio and the HBO Max streaming service. Discovery Global will hold a 20% stake in Warner Bros. The CFO highlighted that Warner Bros., which has been burdened with significant debt since merging with Discovery, has reduced its net debt to approximately 30 billion dollars and aims to further reduce it by the end of the year. Selling the stake is seen as another "creative tool" to help manage the debt.

The CFO emphasized that any potential transaction must be carefully considered, as Warner Bros. aims to achieve full value. The company has a year to complete the tax-free transaction, but some investors have already expressed interest in early discussions. The CFO, who will soon take over as the CEO of the Discovery business, stressed that Warner Bros. is committed to creating "two highly promising companies." The current CEO of Warner Bros. will lead the film and television studio and streaming business.

Regarding the industry trend of companies spinning off traditional television networks, the CFO stated that all options will be evaluated, but the company will always prioritize creating real value. In June, Warner Bros. announced that it would split into two publicly traded companies through a tax-free transaction: Streaming & Studios (S&S) and Global Networks (GN).

Streaming & Studios will include core assets such as Warner Bros. Television, Warner Bros. Pictures, DC Studios, the gaming division, HBO, HBO Max, and the television film library. The CFO views this division as the "crown jewel" of the media industry, with its intellectual property and content library overshadowed by past heavy debt and challenges in the traditional cable television business. Post-spin-off, this division is expected to shed its debt burden, unlocking growth potential and attracting potential acquirers looking to expand their scale.

Global Networks will encompass linear entertainment, sports, and news television channels globally. Despite market pessimism towards traditional linear television, the CFO noted that with the right capital structure and management team, this business still holds significant untapped equity value creation potential at current valuation levels. Potential strategic options include cash management, integration with similar linear assets, asset sales, and private equity investments.