Paramount Skydance’s acquisition of Warner Bros. Discovery (WBD) will likely lead to significant layoffs as it cuts functions that overlap between the two companies.
The acquisition will yield more than US$6 billion in synergies, according to Paramount. Netflix had previously agreed to buy WBD for $83 billion, but declined to raise its bid last week after Paramount offered $110 billion for the company.
The deal would unite two of the United States’ largest entertainment companies, including two major movie studio businesses. Paramount’s synergies would stem from cutting “duplicative functions on back office, finance, corporate, legal, technology, infrastructure, et cetera”, chief operating officer Andy Gordon said in December.
“They have what we call the Noah’s Ark problem, which is, if they effectuate this deal, they’re going to have two of everything,” said Netflix chief global affairs officer Clete Williams about Paramount and WBD last month.
Netflix had identified $2-3 billion in synergies under its bid, less than half of Paramount’s target. Its offer would not have included WBD’s cable television arm, which features channels like CNN.
Several WBD employees told CNBC that they would have preferred a Netflix acquisition, in part because of the lesser overlap between its core competencies and WBD’s.
Paramount owns CBS News, and is likely to cut overlapping departments and jobs if it assumes control of CNN. One CBS News staffer told The Guardian that their department would likely be disbanded if its network’s functions are merged with CNN’s.
Paramount’s bid is also backed by $54 billion in debt commitments, which could spur major cost-cutting. WBD similarly cut massive costs in an attempt to shake off its debt after Discovery merged with Warner Bros. in 2022.
The transaction must be approved by regulators in California, the U.S. federal government, and Europe to close. California’s Attorney General Rob Bonta said last week that the state had already begun an investigation
Paramount has offered WBD shareholders $0.25 per share, or $650 million in total, for every quarter that the transaction does not close, starting in September.
“The deal may not close," WBD CEO David Zaslav reportedly told employees on Friday. "If it doesn't close, we get $7 billion, and we get back to work.”
Warner Bros. Discovery (NASDAQ: WBD) shares closed 2.2% lower at $28.17, but climbed 0.3% after-hours. Its market capitalisation is $69.86 billion.
Paramount Skydance (NASDAQ: PSKY) shares surged 20.8% to $13.51, and rose a further 5.3% after-hours. Its market capitalisation is $15.02 billion.
