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On Tuesday, UBS reiterated its Neutral rating on Warner Brothers Discovery shares (NASDAQ:WBD) with a steady price target of $9.00. The company has unveiled a strategy to reorganize into two separate publicly traded entities: Streaming & Studios (S&S) and Global Networks (GN). The S&S division will include Warner Bros Television, Warner Bros Motion Pictures, WB Games, DC, HBO Max, and TNT Sports International. Meanwhile, the GN entity will consist of a global collection of linear TV networks and specific digital assets such as discovery+, Bleacher Report, and a future CNN service.
In addition to the division, Warner Brothers Discovery is initiating a debt tender offer aimed at reducing its gross debt. This reduction will be supported by a $17.5 billion bridge loan. The GN division is set to retain up to a 20% equity stake in the S&S segment, which it plans to sell off in the future to further decrease its leverage.
The company has not disclosed detailed information regarding the capital structure for each new entity. However, the effective execution of these plans is expected to be a significant factor for the business. Warner Brothers Discovery’s management has indicated that the majority of the debt would be held by the GN division, with an estimated leverage of 3.0 to 3.5 times. This suggests a net debt range of $16 billion to $19 billion for GN, compared to the total company’s anticipated net debt of $30 billion in 2025, before the restructuring takes place.
The completion of the split is anticipated by mid-2026. Following this, the company aims to sell the less than 20% stake in the S&S business within the subsequent year. This move is part of Warner Brothers Discovery’s broader strategy to streamline operations and improve its financial position.
In other recent news, Warner Bros. Discovery has announced a significant debt buyback initiative, aiming to repurchase up to $14.6 billion of its outstanding notes. This move is part of the company’s broader strategy to streamline its capital structure and reduce debt following a recent merger. Additionally, Warner Bros. Discovery plans to split into two independent publicly traded companies, a Streaming & Studios company and a Global Networks company, to enhance strategic focus. This separation is expected to be finalized by mid-2026, subject to board approval and market conditions.
BofA Securities has maintained its Buy rating for Warner Bros. Discovery, highlighting the company’s unique assets and strategic reorganization as steps towards unlocking value. However, S&P Global Ratings downgraded Warner Bros. Discovery’s credit rating to ’BB+’ due to weakening credit metrics, particularly in its linear TV operations. Despite this, the stable outlook anticipates growth in the streaming and studio segments to offset declines.
In the streaming sector, Warner Bros. Discovery announced the rebranding of its primary platform, Max, back to HBO Max this summer. This decision follows substantial growth in its streaming business, with a profitability increase of nearly $3 billion and an addition of 22 million subscribers in the past year. The company aims to reach over 150 million subscribers by the end of 2026.
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