John Malone, the billionaire media mogul who is a longtime shareholder of Discovery, said his impending merger with WarnerMedia would lead to debt but offset that with cost savings.
“The leverage effect is relatively high for this [merged] company, but the interest rates are quite low, ”he told Liberty Global CEO Mike Fries when asked about debt. “This is long-term, investment-grade debt. The rate at which the free cash flow will repay this debt as well as the synergies “will help satisfy the concerns of investors,” he added.
Liberty Global is one of a range of businesses and assets controlled in whole or in part by Malone, including Liberty Media, Formula One, Atlanta Braves baseball and SiriusXM. The two spoke at a kickoff at the International Council Summit at the Paley Center for Media. Held annually in New York City at the downtown Paley building, the event has moved to a virtual format due to Covid.
Fries noted estimates that Discovery and WarnerMedia’s debt is about four and a half times earnings. The companies have said their merger will be completed by mid-2022. The cost savings, Malone retorted, “will easily exceed” $ 3-4 billion a year.
The main overlap between the merging companies is in cable programming and streaming, with the Turner, Discovery + and HBO Max networks able to share resources. The $ 2.5 billion synergy forecast when AT&T bought Time Warner resulted in the departure of more than 1,000 workers amid several major restructuring cycles. “It’s a great combination of synergy,” said Malone. There have been no comments from the companies on the layoffs, which is not surprising, as the deal makes its way through the regulatory process.
David Zaslav, the CEO of Discovery who will also lead the combined company, is a “force of nature,” added Malone. “I’ve never seen a guy with more energy and I think he’s extremely confident. If there is anyone who can do this kind of combination, it would be David.
Malone turned 80 earlier this year. He said that while his health remains good, Covid has kept him from attending many things in person, even the Braves’ World Series victory last month.
The conversation covered a wide range of topics, from General Electric’s breakdown earlier this morning to inflation forecasts to the effects of Covid. One theme Malone is often asked about is the state of investments in broadband and cable infrastructure. Along with his experience as a cable pioneer, Malone remains a major investor in Charter Communications, which, along with other broadband and telecommunications players, faces challenges of capital spending to keep pace with technological change. .
“The existing wired infrastructure, as I know it, is well positioned” to add capacity for latency reduction, advanced computing and other emerging needs, said Malone. “There are all kinds of back-up technologies available to incumbents who have built robust networks. The challenge will be, as these new applications emerge, which companies will be able to help pilot and support these applications? “