Warner Bros. Discovery shares surged by 7% on Tuesday after Bank of America (BofA) Global Research analysts suggested various strategies to boost the company’s shareholder value. Recommendations included a company or asset sale, a merger with a broadcast network, and a strategic spinoff.
Warner Bros. Discovery, despite running one of the few profitable streaming platforms, has faced setbacks due to its struggling linear TV assets. The firm’s stock has dropped 70% since its 2022 merger. Additionally, the company began new layoffs this week.
Wall Street analysts remain skeptical about imminent improvements.
Jessica Reif Ehrlich and her team at BofA highlighted that the company, in its current form, struggles to thrive as a publicly traded entity, suggesting that transformative changes are necessary to unlock value.
The BofA report, titled “Is Unbundling the Answer?” explored all available options for Warner Bros. Discovery. While selling the entire company was considered, the report noted potential difficulties in finding interested buyers and the likelihood of regulatory hurdles.
Other suggestions included selling some assets, such as CNN, valued at an estimated $6 billion, and Warner Bros. Games, valued at $5.6 billion.
Another potential strategy is merging with a broadcast network to fill a gap in Warner Bros. Discovery’s portfolio. Broadcast networks, with their large audience reach, higher advertising revenue, and premium sports programming such as NFL games, present beneficial opportunities. The analysts pointed to Fox as a possible candidate.
A combination of broadcast and streaming could increase overall viewership by appealing to both older and younger audiences.
The BofA analysts’ most innovative suggestion was a strategic spinoff segregating the company’s direct-to-consumer (streaming) and studio assets from linear TV assets (cable channels). In this scenario, Warner Bros. Discovery would offload most of its debt onto the linear TV segment.
This linear TV business could then potentially merge with other media companies’ struggling assets.