00:00You think back a couple weeks ago on February 10th, Paramount actually came out. They reiterated
00:04a $30 per share cash offer for the entire Warner Brothers discovery, but they did add in a few
00:10other things. Number one, they said that they would pay the $2.8 billion termination fee
00:14that Warner Brothers would owe Netflix for breaking that deal. They said that they'd
00:19help with the $15 billion of bridge loan that Warner Brothers has outstanding from a bond
00:26tender deal that they did mid last year. They'd also fully reimburse Warner Brothers discovery for
00:32a potential $1.5 billion fee that Warner Brothers could owe certain bondholders if they do not do
00:38a debt exchange by the end of this year. So this is a complicated story that keeps getting more and
00:44more layers of complexity on top of it. Remind us, Steve, if Paramount were to win this deal for
00:51Warner Brothers, this would be a very highly indebted company. You guys don't like that,
00:56do you? Correct. Yes. So Warner Brothers discovery would have about $85 billion of total debt
01:01pro form for this deal, a combination of Paramount and Warner Brothers, right? So Warner Brothers has
01:06about $31 billion of debt. Paramount has about 15. This deal would add about 39. So you're talking
01:11about $85 billion. If you just look at the combined EBITDA for both Warner Brothers and Paramount
01:19for 2026 combined, they're about $12 billion. You know, just basic math, you're talking seven times
01:25leverage. That's obviously huge. But Warner Brothers, Paramount, expect about $6 billion of cost synergies.
01:32So if you give them credit for that, that gives you about $18 billion of EBITDA. It still gets you
01:37well over four times. But your credit guys never get synergy credit. You guys are pretty stingy.
01:41Well, yeah, we can give it, but we give you a certain amount of time to actually show it,
01:45right? So and this is really important because what will the rating agencies do? And for the $54
01:50billion of debt financing that they have in place to support this deal, to what extent will it be
01:56ahead of the other debt through either guarantees and or security? So if you could argue that it is
02:03ahead of all the other debt and you give them pro forma credit for the synergies, you're talking about
02:08three times leverage through that $54 billion, which could potentially get you IG credit ratings,
02:15right? So if we look at Charter as a comparable. So Charter for many years had a total net leverage
02:20target of four to four and a half times, but they had a split capital structure. The secured bond debt
02:25was IG, the unsecured debt was high yield, and the secured debt, they kept that a little bit over
02:31three times. And so if you use that as a comp and give them credit for the synergies, you know,
02:36you could say that- Well, there's a lot of ifs there.
02:39Yes, there is. There's a lot of ifs there. Plus I like Charter's cash flow better than I like.
02:43Yeah, but you know, pro forma, paramount, Warner Brothers should generate a lot of free cash flow
02:47and they, you know, they should, I assume they will commit to use all that to reduce the debt.
02:52And typically grading agencies will give the company a few years to kind of hit their targets
02:57and show the deleveraging. So Warner Brothers, when it merged with Discovery, also took on a lot of
03:02debt. How does this potential Warner Brothers and Paramount debt profile look compared to what
03:07Warner Brothers looked like after it merged with Discovery?
03:10You know, in total, when thinking about the leverage, it's not too different,
03:12but let's hope that this works better, right? So because-
03:15Well, that's the question, right? Last time it didn't work so well, and Zaslav was kind of
03:19just preoccupied with bringing down the debt for years.
03:23Correct, correct. So when they merged Discovery with Warner Brothers, they purchased it from AT&T
03:29effectively, and it had a high leverage and they promised to delever,
03:33and it did not delever as quickly as anticipated. So then that's when last summer,
03:37you had the whole announcement of the split, and they decided to launch a tender offer where they
03:41got some new financing in place and told the existing bondholders, we'll buy the bonds back
03:45from you. But, you know, you're taking some pretty big haircuts to the amount that you're owed,
03:50and they still had very good participation. So that helped them delever a little bit,
03:53and then they put themselves up for sale, and we've had all the mergers since then.
03:57So like, let's load up on debt again.
03:58Let's load up on debt again. We've seen this play before.
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