Warner Brother Discovery seems to be losing the plot. In early spring, Discovery closed its blockbuster acquisition of Warner Media assets from AT&T. Broadcasting group HBO was the biggest trophy.
The fortified US media group was supposed to be a serious rival to the likes of Disney, Netflix and Comcast. For now, it looks like the latest M&A meltdown.
Late on Monday, WBD said that it would take as much as $4.3bn in restructuring charges. The bulk of these consist of content impairments and development write-offs. This will not be the last we hear of the money pit created by the streaming wars
Hollywood was left in shock earlier this year when WBD shelved the release of the Batgirl film adaptation. Over the summer, the company admitted it had reduced its $10bn operating profit target for 2022 by as much as a tenth.
Media integrations are messy. WBD is attempting to smash two disparate companies together amid an economic slowdown and an advertising slump. Still, front-loading bad financial results is an age-old plot device to set up a happy ending.
On Tuesday, shares of WBD moved little. Wall Street was already braced for bad news. Since the deal closed in the spring, WBD shares are down by nearly half. Investors now worry that a $50bn debt load looks bloated compared with a market capitalisation of just $30bn.
WBD says that of $4bn in potential charges, cash costs only represent about a quarter. That might be comforting except that just months ago it shelled out $42bn to AT&T and gave shareholders in the telecoms group 71 per cent of the new WBD. According to filings, the transaction has generated $21bn alone in new goodwill on the balance sheet, representing the excess purchase price that cannot be allocated to specific assets.
WBD believes that in the next year or two it will become a streamlined cash machine. At that moment of triumph, accounting charges from yesteryear would mean little. Today’s write-offs are an ominous warning against assuming that is a foregone conclusion.
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