Paramount-Warner debt of nearly $80 billion called 'staggering' by analyst

Paramount targets 3x Ebitda, $6B synergies within three years

The Wall Street Journal’s CFO Journal newsletter on Monday laid out the financial architecture of the $81 billion megamerger between Paramount and Warner Bros. Discovery, highlighting the near-$80 billion debt load at the combined entity, a $6 billion synergies target, and specific financial penalties tied to Paramount Chief Executive David Ellison’s pledge to deliver 30 movies a year across the merged studios.

A prominent media industry analyst has called the debt figure “staggering,” as the Journal’s Joe Flint wrote in July. The debt load hangs over Ellison’s ambitions to expand content production, the CFO Journal newsletter reported, citing an interview with the Journal’s Los Angeles bureau chief Ryan Faughnder, who previously was a senior editor with the Los Angeles Times’ Hollywood Inc. team.

Two levers could help Ellison manage the debt. Paramount’s cable channels still generate cash even as the broader cable industry declines, the CFO Journal said. The company has also projected $6 billion in synergies from the merger, achievable by consolidating streaming-technology operations across Paramount+ and HBO Max and by eliminating overlapping jobs. Paramount told investors it would lower the debt ratio to three times annual Ebitda within three years, the newsletter reported.

Much of the deal’s longer-term outcome depends on whether Ellison delivers on his pledge of 30 movies a year combined from the merged studios. Hollywood remains skeptical, as the Journal’s Ben Fritz has reported, but the commitment has been central to Ellison’s pitch to the industry, the CFO Journal said. Under Monday’s settlement, Ellison is on the hook financially for about $30 million for each movie the combined company falls short, according to the newsletter.

Paramount also committed to $1.5 billion more in domestic entertainment production over the next five years. California Attorney General Rob Bonta described the commitment as “a big win,” the CFO Journal reported.

The settlement was announced Monday with state attorneys general from a dozen states, including California and New York, removing a major hurdle to the $81 billion megamerger, the Journal’s Jessica Toonkel and Paul Kiernan reported. The merger would bring together two of the movie business’s oldest studios — Paramount and Warner Bros. — two major streaming services in Paramount+ and HBO Max, and dozens of television networks under one owner, encompassing franchises such as Harry Potter, DC superheroes and “Game of Thrones,” alongside cable networks including CNN and Cartoon Network.

The settlement stops short of forcing Ellison to make significant structural changes to the company but includes penalties such as the forced sale of cable channels and Paramount’s stake in Miramax if Paramount does not make good on its promises, according to the CFO Journal.

The deal’s broader implications for the media and entertainment industry remain contested. Many entertainment workers are concerned that the merger will further imperil Hollywood jobs, already diminished by the pandemic, the 2023 writers’ and actors’ strikes, and studios moving productions abroad to capture government incentives, the CFO Journal said. The settlement removes one source of uncertainty — without it, the multistate case was set to drag on through March — but other variables remain.

The same newsletter, written by Walden Siew and the CFO Journal team, also reported that OpenAI on Monday asked the U.S. government to lead an international effort to develop global artificial-intelligence safety and security standards, including common measures for evaluating forthcoming self-improving AI systems and secure channels to share emerging threats, with the U.S. Center for AI Standards and Innovation working with AI safety institutes in the U.K., France, and Singapore. Separately, a contractor apparently accidentally cut 600 feet of fiber communications line in New Jersey, disrupting air travel at Newark Liberty International, John F. Kennedy International, and LaGuardia airports and diverting about 90 flights, with delays compounding at Newark and Philadelphia — the hardest-hit airports — and spillover disruptions at the other New York City airports and Boston, according to Federal Aviation Administration chief Bryan Bedford. The newsletter also reported that Avantor, a Radnor, Penn.-based provider of products and services to the life-sciences and advanced-technology industries, hired Todd Garner as its new executive vice president and CFO; Garner previously served as EVP and finance chief of Conmed, and Steve Eck, who had been serving as interim CFO since R. Brent Jones left in June, will continue as chief accounting officer. The newsletter also quoted Adam Grant, the bestselling author and organizational psychologist at the University of Pennsylvania’s Wharton School, who told the WSJ: “The expertise you have today may be obsolete tomorrow.” Grant also said in an interview with The Wall Street Journal: “Great careers used to hinge on ability, and now they depend on agility.” Colin Kellaher contributed to the newsletter.