David Zaslav’s future hangs in balance as Warner goes up for sale

Warner Discovery Chief Executive David Zaslav is in the fight of his professional life to stop the company from being swallowed by Paramount, the rival entertainment giant controlled by David Ellison. Ellison has financial backing from his father Larry Ellison, the world’s second-richest man.

Home to the “Harry Potter" and DC Comics film franchises and HBO’s “The Last of Us," Warner Discovery already has rejected two offers from Paramount, The Wall Street Journal reported. The company turned down Paramount’s latest offer this week, according to people familiar with the matter.

On Tuesday, Warner Discovery broke its silence on a potential transaction, saying it had received inquiries for all or some of the company and would review “strategic alternatives" which could include a sale of all or some of its assets. Warner Discovery shares rose 11% to $20.33 Tuesday. Paramount’s stock fell 3% to $16.51.

Warner Discovery didn’t name any of the parties expressing interest and hasn’t publicly commented on Paramount’s offers. Now that the company has opened the door for would-be suitors, industry analysts expect others to kick the tires.

Zaslav has told associates he would rather the company continue with his plan to split the media giant into two. Under the plan, its TV and movie studios and HBO Max streaming business would be held in one publicly traded company led by Zaslav and its cable networks, including CNN and TNT, would go into another run by current chief financial officer Gunnar Wiedenfels.

Zaslav praised Warner Discovery’s performance in a Tuesday-morning call with senior company leadership and tried to ease jittery staffers, according to people on the call. He talked about a turnaround at the movie studio and the need for everyone to stay focused on their jobs.

Some on the call saw it as a cheerleading and morale-boosting effort for a staff concerned about the company’s future.

Warner Discovery said Tuesday that other than its planned split “there can be no assurance" of a transaction or another outcome.

Raymond James analyst Ric Prentiss called it a “come one, come all" situation. Analysts have said that potential interested parties could include Amazon, Netflix, Apple and Comcast, all of which already have significant entertainment operations.

Comcast, which owns NBCUniversal, and Amazon—which has the Prime Video streaming service and a film and TV production operation—are likely to take a look at the Warner Discovery assets, people familiar with the matter said.

On Netflix’s Tuesday earnings call with analysts, Co-CEO Ted Sarandos said, “Nothing is a must-have for us." He said that Netflix looks at “all" M&A opportunities, but isn’t interested in owning legacy media networks.

An Apple spokesman declined to comment.

Paramount’s overtures to Warner Discovery come less than three months after David Ellison’s Skydance Media took control of the company from Shari Redstone’s National Amusements.

Its holdings include the Paramount movie studio, known for the “Top Gun" and “Mission: Impossible" franchises and classics such as “The Godfather," the Paramount+ streaming service, the CBS broadcast network and an array of cable brands such as MTV, Comedy Central and Nickelodeon.

It recently acquired the opinion and news site The Free Press in a deal valued at $150 million and named the digital publication’s founder Bari Weiss as editor in chief of CBS News.

If Paramount prevails in its quest for Warner Discovery, it would be taking on a significantly larger business. Warner Discovery posted revenue of more than $39 billion for full-year 2024, while Paramount generated about $29 billion in sales last year, before it combined with Skydance. As of Tuesday, Warner Discovery’s market cap was more than double Paramount’s.

Paramount declined to comment.

A combination with Warner Discovery would give Paramount more heft in a leaner Hollywood, where scale counts in streaming and cable continues to decline.

David Ellison has been plotting a revival for Paramount’s cable brands, which aren’t as popular or lucrative as they were during cable’s heyday.

Warner Discovery is attractive to Paramount because it has stronger movie and television studios and Warner Discovery’s streaming business is bigger than Paramount’s. Warner Discovery’s cable network group also boasts higher revenues than Paramount’s.

Warner Discovery’s streaming business counted nearly 126 million subscribers worldwide, which includes a small percentage of Discovery+ subscribers, in the second quarter, compared with Paramount+’s 77.7 million.

“We struggle to see a credible stand-alone future for Paramount as the kind of company it aspires to be," said Bernstein analyst Laurent Yoon.

Other would-be suitors are likely more interested in just the Warner Bros. and HBO Max assets, according to analysts and industry executives. The cable-network business is in decline as a result of cord-cutting, lower ratings and shrinking ad revenue.

Zaslav and others at Warner Discovery have argued that the split strategy opens the door to more potential suitors because its Warner Bros. studio and HBO Max are seen by many as rare gems. Warner Bros. has a vast library of movies and TV shows, and the film division has been on a hot streak with box-office hits such as “Sinners" and “Weapons." HBO Max has had some big hits with shows such as “The Pitt" and “White Lotus."

“We continue to believe that our planned separation to create two distinct, leading media companies will create compelling value," said Warner Discovery Board Chair Samuel Di Piazza Jr. in a statement.

In conversations with associates, Zaslav has indicated the offers from Paramount don’t reflect the value he and the board feel Warner Discovery is worth, according to people familiar with the matter.

If someone were to buy the Warner Bros. studio and HBO Max assets before the split, which is expected to be tax-free, the purchaser would incur a tax penalty.

Paramount’s play for Warner Discovery is the latest complication for Zaslav, who has endured a rocky tenure since Discovery acquired the Warner assets from AT&T in 2022.

The company was saddled with more than $50 billion in debt and has had to confront increased cord-cutting, Hollywood labor strikes and costly investments in streaming. Some staff say rounds of layoffs, which have become common among legacy media businesses, have weighed on morale.

Heading into its planned split, the company has improved its fortunes. The gross debt load is now around $35 billion. Nonetheless, the stock had continued to languish.

Bernstein’s Yoon said Warner Discovery shouldn’t rush or settle when “it owns the assets everyone wants." The alternative, he said, “is simply to proceed with the separation and revisit M&A later, perhaps with a better outlook."

Write to Joe Flint at Joe.Flint@wsj.com