Now for the latest in the WarnerMount saga…

Talking to Gerry Cardinale these days, you get equal doses of offense and defense. The RedBird Capital dealmaker and chief architect of Paramount Skydance’s $111 billion acquisition of Warner Bros. Discovery is simultaneously basking in the biggest media deal of his 30-plus-year career while also kinda feeling the need to explain—and, yes, defend—that same transaction to many jaded skeptics in Hollywood. I’m one of them.

The Warners megadeal—along with the just-announced $8 billion combination of reality TV juggernauts Banijay and All3Media, via the RedBird IMI joint venture, and the new partnership between Ben Affleck and Matt Damon’s RedBird-backed Artists Equity and Netflix—has helped make Cardinale arguably the most prolific dealmaker in this period of Big Tech disruption and legacy consolidation in entertainment, the era I’ve dubbed “late-stage Hollywood.” But it’s also put him in the public eye, especially as the Ellisons have greased the Trump machine to help get this deal approved. Which is why I asked the former Goldman Sachs banker to explain to the town how—despite the, uh, mountains of evidence—the WarnerMount combination won’t mirror AT&T, in 2018, when it paid $109 billion (including debt) for Time Warner. Or repeat what happened four years later, when John Malone and David Zaslav created Warner Bros. Discovery and it nearly collapsed under the weight of crushing debt and cratering TV revenue, only to be passed along to another optimistic rich guy willing to take on… wait for it… nearly $80 billion in debt.

Thankfully, Gerry was game to talk. “On the surface, that amount of debt is a large amount of debt for any company,” Cardinale acknowledged in a 40-minute chat yesterday (you can watch or hear it here). “But our cashflow is also a large amount of cashflow for any company.” Indeed, as my colleague Bill Cohan has explained, WarnerMount is being funded by $79 billion in debt, including new commitments from Apollo, Bank of America, and Citigroup, and $47 billion in equity from Larry Ellison and Cardinale’s RedBird, with likely help from Middle East investors (more on that in a moment). Larry and his Oracle stock are backstopping the whole Hollywood thing—much to the chagrin, I’m guessing, of his family office.

Warner Discovery initially predicted that its EBITDA would reach $14 billion by 2023. Instead, its profits had nosedived to $8.7 billion by 2025. But Cardinale told me that the cash coming from the combined WarnerMount, which will generate a little less than $12 billion in EBITDA this year, will soon rise to $18 billion after $6 billion in cost cuts. “It unlocks tremendous cashflow and synergies,” he told me of the deal. “That all gets reinvested back into content, and it also helps us de-lever.” On CNBC today, David Ellison said that unlike Zaslav, he’s wise to the TV “decline curve” and that, “We’ve taken a very, very conservative view to that in our models to ensure that we never get into a position where that’s not manageable.”

To that end, despite the melting iceberg of TV, where both of these companies make most of their money, and the fact that the Fitch ratings agency just downgraded Paramount to junk status, Cardinale said he’s relying on a key profit driver that Zaslav never had. “CBS is the crown jewel in the linear portfolio,” he told me. “And that is why we’re different than what Warners and Discovery had to deal with when they did their deal.”

Indeed, CBS still throws off tons of cash, remains home to the NFL (though football rights are about to get a lot more expensive) and other lucrative sports assets, and is a big reason why the combined WarnerMount would account for an industry-leading 13.7 percent of TV viewing on linear and streaming—more than YouTube (12.5 percent), Disney (11.9 percent), and Netflix (8.8 percent)—per Nielsen. On streaming only, that WarnerMount percentage drops to 8 percent, less than a third of YouTube (27 percent) and less than half of Netflix (19 percent), which indicates the relatively small audience on Paramount+ and HBO Max—and the power of CBS within that portfolio. If the Ellisons can start spreading UFC, golf, and all those top 10 shows that nobody you know watches across the various combined platforms, maybe that keeps the linear cash cow out of the slaughterhouse long enough to elevate the combined Par+/HBO Max and its nearly 200 million subscribers into a legitimate Netflix competitor long-term. Cardinale and the Ellisons seem to be banking on it.

Understandably, the creative community—and those who manage the larger L.A. economy—are less concerned with EBITDA than the coming jobs massacre across the merged WarnerMount. Those $6 billion in cost cuts must come primarily from people, right? But it was surprising to hear Ellison on CNBC this morning, and Cardinale in our chat, say that won’t be the case. “The majority of our synergies that are cost-related have nothing to do with firing people,” Cardinale told me.

Hmm. That seems implausible, given that Paramount Skydance just finished a $3 billion-plus cost cut at the combined company that included a ton of duplicative people. So how will it be possible? “Number one, we’re going to consolidate our streaming technology stacks and our cloud providers across Paramount+ and HBO Max,” he told me. “Number two, we’re going to optimize the combined real estate footprint and corporate overhead.” That means better utilization of office space globally, not selling off one or both of the L.A. studio lots, he said. Instead, “We’re going to develop them more efficiently.”

I’ve heard that could include adding theme park–style experiential entertainment on one of the lots, à la Universal Studios, but Paramount declined to confirm or comment. In addition, Cardinale said, “there’s a lot of global efficiencies we can drive in procurement and in general business services”—meaning I.T., travel, marketing agencies, that kind of stuff. “And then importantly, we’re migrating the combined company to a single enterprise resource-planning system.”

Okay… so boring, back-office efficiencies, mostly. But does that really save billions of dollars and allow the company to slash debt while also making and marketing 30 theatrical movies a year and a larger TV slate and investing in a world-class tech platform and not firing half the population of Burbank? Are you convinced? Maybe? Hopefully Cardinale isn’t just downplaying the coming bloodbath to quell the proletariat.

When T-Mobile merged with Sprint in 2019, then-CEO John Legere promised the $26.5 billion deal “will be a tremendous jobs creator at New T-Mobile,” and he committed to adding 11,000 positions by 2024. But in April 2023, an investigation found that T-Mobile had 9,000 fewer employees than the two companies did before the merger. T-Mobile then announced an additional 5,000 layoffs. By then, Legere had exited the company with a $137 million severance package.

The other area of concern, of course, is that $24 billion from sovereign wealth funds in Saudi Arabia, Qatar, and Abu Dhabi that Paramount said in December would be part of this transaction. Still happening? After all, the FT reported today that the war in the region could cause the oil-rich countries to reconsider their U.S. investments. Plus, lots of people—including many blue state attorneys general who, according to California A.G. Rob Bonta, are deciding whether to sue to block this transaction—would like to know whether Crown Prince Mohammed bin Salman and other Middle East leaders who may or may not have murdered journalists will soon claim a stake in the owner of CNN and CBS News. Cardinale wouldn’t say, but he strongly hinted yes. “We haven’t syndicated anything at this time,” he told me. “We do expect to syndicate with strategic, domestic, and foreign investors. But that alchemy shouldn’t matter because it’ll be done in the right way.”

By the right way, he seemed to mean that the investors won’t have any operational involvement, which Paramount said in December, and therefore the investors’ identities don’t really matter because the Ellisons are ultimately controlling the whole thing. Plus, Cardinale, who has extensive connections in the Gulf, is more than happy to raise money there. “The world is changing,” he said. “We can stick our head in the sand and pretend it’s not, or we can embrace globalization and the derivative benefits both geopolitically and otherwise that come from that.”

So if it’s no big deal, why isn’t Paramount ready to name the backers? Such are the contours of this complex deal, where optics are dominating the closing process but the cold, hard math of debt and revenue will ultimately determine whether Ellison and Cardinale can make it work.

(Disclosure: Through Puck’s acquisition of Air Mail, RedBird became a minority shareholder.)

See you Monday,
Matt

Maya Tribbitt contributed research for today’s issue.

Correction: Drew Goddard wrote the Project Hail Mary screenplay, not Drew Pearce, as Scott mentioned on Monday. Apologies to both Drews.

Got a question, comment, complaint, or suggestions for theme park attractions on the Paramount lot? Email me at Matt@puck.news or call/text me at 310-804-3198.

Need help? Review our FAQ page or contact us for assistance. For brand partnerships, email ads@puck.news.

You received this email because you signed up to receive emails from Puck, or as part of your Puck account associated with {{customer.email}}. To stop receiving this newsletter and/or manage all your email preferences, click here.

Puck is published by Heat Media LLC. 107 Greenwich St., New York, NY 10006