Potential Sale of CNN to Ex-CEO Jeff Zucker Raises Political and Regulatory Concerns, Analyst Says

Benchmark analyst Matthew Harrigan reiterates a Buy rating on Warner Bros. Discovery, Inc WBD with a price target of $26.00.

Warner Bros. Discovery stock advanced nearly 4% on Monday, likely off further discussion in the U.K. and global business press on possible CNN developments. 

Any supposed sale of CNN to ex-CEO Jeff Zucker would be problematical from political and regulatory perspectives if funds from the UAE primarily funded the transaction. 

Kirkland & Ellis partner Ivan Schlager commented to news site Semafor that the Qatari government already funds Al Jazeera, and the sale of Forbes to Indian investment entity Sun Group has been held up by political concerns. 

Any foreign bid for CNN would necessitate a comprehensive CFIUS review, primarily as the UAE would directly or indirectly fund more than 25% – with RedBird having formalized plans for a JV with Abu Dhabi's International Media Investments. 

Current investments by the company include Skydance Media and the XFL. 

Beyond regulatory concerns, CNN live programming remains an appealing building block for the Max streaming service. It is complementary to a remote likelihood of acquiring CBS if spun off from Paramount Global PARA to enable a merger with Comcast Corp CMCSA-owned NBCUniversal. 

Live CNN programming would bolster Max's appeal. However, it may be necessary to revise cable and satellite carriage agreements to revise exclusivity for popular CNN prime-time and all-day programming. This was almost certainly a major, but not sole, contributor to the demise of CNN+. 

He writes that Warner Bros. Discovery would have to consider any fully financed mid-single digit billion bid for CNN, although the above foreign ownership considerations could complicate this. 

Despite CNN's travails under departed CEO Chris Licht, a mid to high single-digit billion valuation is very tenable if credence is attached to a report that CNN generated $750 million in 2022 operating profits even with the albatross from a $200 million CNN+ streaming loss. 

Any confirmation of CNN's private market value in this vicinity is very positive for WBD's stock price. 

The Warner Bros. studio is even more discounted in WBD's stock price even as the analyst looks for better results in 2H23 after a disappointing performance from The Flash and Shazam! Fury of the Gods. 

The primary product includes Barbie, Dune: Part Two, Wonka and Aquaman, and The Lost Kingdom. Despite revamping, the two disappointing DC Comics releases were inherited from the prior studio regime, and the analyst is confident in the new leadership and creative acumen of James Gunn and Peter Safran.

Price Action: WBD shares traded lower by 0.85% at $12.91 on the last check Wednesday.