Merging is all the time the simple part. The businesses are often willing to hitch forces. Bankers and lawyers are incentivized to get the deal done. Plus the media loves M&A take care of photo ops of high-fiving CEOs and their grand plans to make history through the means of creative destruction.
But then comes the heavy lifting: Successfully combining two often very different firms with different corporate cultures and creating shareholder value. I’ve been around this business long enough to know that there’s a lot of destruction in big-time M&A.
Deals crash and burn not less than as much as they pan out, perhaps more. And what a racket it’s for Wall Street, which gets paid even when their work ultimately produces failure on a monumental scale. David Zaslav’s Warner Bros. Discovery may be the following one to fail for reasons that can soon turn into apparent.
Consider the once mighty GE, a conglomerate built on theories about how larger is healthier. Until it became crystal clear the conglomerate wasn’t living as much as its hype and needed to be broken up as shares fell to close penny-stock territory. The bankers who constructed those ugly acquisitions still haven’t spent all of the fees they generated on their ill-fated dealmaking.
Then there are the travails of Citigroup. The 1998 mega-deal merged the Travelers Group investment bank and insurance giant with commercial-banking icon Citicorp. It was based on the premise that a financial colossus could earn a living cross-selling investments and traditional banking products to large institutions and individuals.
Zaslav is in search of $3 billion in post-deal savings this yr. SOPA Images/LightRocket via Gett
On reflection: Not likely. The cultures of the companies never quite meshed. (Banking king Jamie Dimon was even ousted within the chaos.) The cross-selling “synergies,” as bankers call them, didn’t really materialize either, not less than not enough to make up for all of the bad stuff.
Citigroup continues to be with us but only due to generosity of the federal government and the American taxpayer: It was one of the crucial bailed-out banks in the course of the 2008 financial crisis.
Mother of all fiascos
Now return in your history books and look up the AOL Time Warner merger fiasco. For my money, there’s probably no greater example of the destruction of shareholder value built upon a mountain of banking fees and failed guarantees of synergistic coupling than this dumbo combo.
The $165 billion deal was announced with much fanfare in January 2000. It featured high-fiving CEOs and guarantees to set the world on fire by cross-selling old media (Time Warner’s magazines, cable programs, CNN, HBO, etc.) with recent media (AOL’s then-popular Web portal).
That sounded good amid the irrational exuberance of the net bubble. When the bubble popped, so did the corporate’s value proposition. Then got here the good unwinding of the corporate’s various assets.
What was left, Time Warner — comprised of HBO, CNN, Warner Bros. Studios, TNT and Turner Sports — was defenestrated in 2016 as well.
The newest sucker, AT&T, bought the corporate for $85.4 billion, promising shareholders they might make the numbers work by utilizing AT&T’s mobile and broadband distribution to sell Time Warner’s programming (more synergies).
However the telecom geeks at AT&T really never liked the entertainment types at Time Warner (and definitely didn’t understand the business). With shares getting crushed and costs rising, they turned to Wall Street once more, unloading Warner to Zaslav’s Discovery Inc. to create a recent media behemoth, Warner Bros. Discovery.
The “Batgirl” movie was canceled before it ever was released for streaming in an try and lower your expenses. CREDIT: LESLIE GRACE/INSTAGRAM
The deal would finally (hopefully) capture those elusive synergies, since Zaslav knows how you can make various media properties, on this case scripted and unscripted content — HBOs “Game of Thrones” and Discovery’s Food Network — work as one. Warner Bros. Discovery was also born with the scale and scale to compete with Disney and Netflix within the streaming wars, shareholders were told.
Even so, with size comes a lot of debt that should be slashed. There’s $55 billion value sitting on Zaslav’s financial statements like a pile of bad scripts. Competition is fierce over its streaming strategy — the alleged way forward for programming that isn’t making as much money as insiders hope.
And yes, those synergies have been hard to search out since Zas — as he’s known in media circles — formally took over the brand new company earlier this yr. That’s the reason his stock has been cratering. Warner Bros. Discovery last week announced a $3.41 billion second-quarter loss.
Swinging a heavy ax
Zaslav is in search of $3 billion in post-deal savings. First to go was the CNN+ streaming service, as these pages reported. A giant-budget likely flop, “Batgirl,” a woke reset of the DC superhero series, was canceled before it could lose Zas even extra money than the tens of tens of millions already spent. As I used to be first to report last week, he’s merging his streaming platforms HBO Max and Discovery+. Layoffs will follow.
After all, it’s too early to place Warner Bros. Discovery in the identical bucket as AOL Time Warner and the remainder of the failures mentioned above. And it’s hard to not root for Zas — he’s considered one of the few honest guys also good at his job on this lousy business.
And who knows? Perhaps his streaming business might soon pick up. Suffice to say, the corporate’s bankers couldn’t care less because they’ll earn a living either way.