Zaz Optionality and Elon’s Complaint

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Happy Sunday, and welcome back to Dry Powder.

Interestingly, the Hail Mary merger I envisioned last week, featuring Warner Bros. Discovery and NBCUniversal, is looking more likely by the day, especially following WBD’s stark earnings call last Thursday. Today, I dig further into the logic underpinning the hypothetical deal, offer some notes on Elon’s Twitter countersuit, consider the remarkable resilience of the carried interest “loophole,” and, finally, attempt to make sense of AMC’s head-scratching new financial ploy.

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Zaz Optionality and Elon’s Complaint

Wall Street’s sharp heel turn on Warner Bros. Discovery has media insiders envisioning an M&A Hail Mary. Plus notes on Musk counter-suing Twitter, Sinema bailing out private equity, and Adam Aron’s APE dividend gimmick.

WILLIAM D. COHAN

Well, I hate to say I told you so, but it looks like we are heading into the very scenario that I, along with cable pioneer Tom Rogers, hypothesized on Wednesday as being a real possibility—that at some point relatively soon, David Zaslav is going to have “do something” with Warner Bros. Discovery, perhaps even merge with NBCUniversal, to make it a viable long-term enterprise. On Thursday, during WBD’s quarterly earnings call, Zaz lowered his guidance for next year, prompting investors to dump the stock. The question now is whether Wall Street will be patient, or if Zaz’s finger is hovering over Brian Roberts’s name on his speed dial.

Look, the brutal fact is that WBD has $56 billion in debt, an astounding number, most of which is rated by the credit rating agencies just a rung or two above junk. That’s not Zaz’s fault per se, but it is literally the biggest part of the price he agreed to pay to take WarnerMedia off of AT&T’s hands in April. At that time, he promised that he would find $3 billion in synergies and that WBD’s EBITDA for 2023 would be $14 billion. Now Zaz has lowered that estimate to $12 billion, a decrease of 14 percent. That revision came as a surprise to equity investors, causing WBD’s stock to fall nearly 17 percent...

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