The proposed $111 billion merger between Paramount and Warner Bros. Discovery is approaching completion, but concerns around debt, execution risk, and long-term industry volatility loom large.
On the latest episode of the Variety podcast “Strictly Business,” Naveen Sarma, sector lead for U.S. media and telecom at S&P Global, explained the rationale for the downgrade his agency gave the combined company’s credit rating upon closing, though he believes the company can deliver on $6 billion in cost-cutting synergies.
“Leverage is significantly high for this transaction,” he said. “We’ve seen this story before with a lot of transactions. We do think this company has the ability to de-lever without going and making massive cuts, certainly at the studios, and so that got us comfortable with the idea that they could de-lever.”
That said, there is considerable skepticism regarding Paramount-WBD’s ability to thrive encumbered by tens of billions of dollars if the transaction clears regulatory hurdles as soon as later this summer. Even if the Department of Justice gives the deal a greenlight, opposition could still come from European regulators or a potential antitrust lawsuit from California State Attorney General Rob Bonta.
The company projects $6 billion in synergies largely driven by technology upgrades, real estate consolidation, and operational efficiencies rather than cuts to content spending. However, these savings will take time and investment. As Sarma puts it, “We’re not going to see cash flow for probably the next two years.”
Beyond financials, broader industry headwinds—including the decline of linear TV, evolving streaming economics, and the disruptive impact of AI—factor into S&P’s cautious outlook. While these risks persist, Sarma believes they are becoming more manageable, citing stabilization in studios and a modest box office recovery.
“Strictly Business” is Variety’s weekly podcast featuring conversations with industry leaders about the business of media and entertainment. (Please click here to subscribe to our free newsletter.) New episodes debut every Wednesday and can be downloaded at Apple Podcasts, Amazon Music, Spotify, Google Play, SoundCloud and more.