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There’s been lots of speculation about Hollywood M&A activity next year, and for all the obvious reasons: a new transactional Trump regime, the end of Lina Khan’s reign at the F.T.C., and of course, the recent one-two punch of Comcast’s SpinCo announcement and Warner Bros. Discovery’s gestural move to reorganize the company by separating its declining cable assets from its growing studio and streaming businesses. There’s also been a lot of chatter that the Ellisons and Gerry Cardinale might engage in some form of a linear roll-up—a deal with a competitor, a spin, etcetera—once their deal to acquire Paramount Global closes, which is expected as soon as the second quarter of 2025. Naturally, I have my own thoughts on how all the pieces might come together to form a new industrial architecture—and, as you might imagine, it largely comes down to capital structures and corporate governance. SpinCo, Comcast’s new, soon-to-be publicly traded company, will include both MSNBC and CNBC (surprisingly), as well as USA Network, Oxygen, E!, Syfy, and the Golf Channel, but not NBC, Telemundo, or Bravo. Brian Roberts, the controlling shareholder of Comcast, will continue to control SpinCo via his voting shares. Comcast leadership has been clear with me that the new SpinCo will not be overleveraged, nor will Comcast consider partnering with a private equity firm on the project. I have my doubts about this, as loyal readers know, but I’ve been doing this long enough to be certain that Comcast leadership isn’t being rewarded to share its longer-term plans yet. They simply need to get SpinCo to market first.

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David Zaslav’s decision to quarantine Warner Bros. Discovery’s linear assets, thus creating two operating divisions at the company, is obviously a prelude to deal activity, probably in 2025 or 2026. But I actually think the deal opportunities on the cable side are less interesting to contemplate. I still believe that a combination of NBCU and WBD, with or without their respective linear TV assets (but increasingly looking like without), is not only viable, but may even be necessary for the two companies to compete long-term with the likes of Disney, Amazon, Apple, and Google. But that will only happen if Zaz and Roberts can reach some sort of amicable détente on structure, ownership, and control. That’s a complex negotiation, given the egos involved, but I still think there’s hope, especially since the parties in question were able to reach a friendly enough agreement on a new “must-carry” deal to keep WBD’s cable channels on Comcast’s cable distribution network. I’ve also speculated on the likelihood that private equity, with its hundreds of billions in dry powder, will want to get involved with these high cash-flowing but declining assets—the precise set of conditions that could facilitate the conversations between the two companies. The gold standard for this kind of structure remains what TPG and AT&T agreed to do with DirecTV in 2022. First, TPG bought 30 percent of DirecTV, allowing AT&T to deconsolidate the assets from its financial statements (and to stop having to answer Wall Street’s questions about the decline). Then, in September, TPG agreed to buy the 70 percent of DirecTV that it didn’t already own. (Disclosure: TPG, as you know, is an investor in Puck.) Yes, the Comcast executives continue to claim that there will be no private equity in SpinCo, but let’s wait and see. I note with interest that Zaz has not said anything material about how much leverage he’ll end up putting on WBD’s linear TV assets in the event of a spinoff, or whether he would allow private equity to play. I take that as Zaz’s own Everything is on the table moment. He certainly is well familiar with TPG’s DirecTV deal, and I’ve got to believe if he can extract more value from his cable assets by partnering with private equity, he’ll do it. Could Zaz be on the verge of a real wishbone split here—unloading the cable nets while eventually combining his digital assets with NBCU’s, thus completing the final act of his public L.B.O. experiment, and extracting real value for his patient shareholders? (This is not investment advice.) We’ll have to wait to see.

Instead, he thinks SpinCo will more likely try to go after Starz, which is the forlorn stepchild in the crazy Lionsgate universe, or AMC Networks, which has a market value these days of around $400 million. They are “near-term merger candidates to build scale, as they have low leverage and relatively unique prestige dramas that could be seen as complementary to the mostly nonfiction content of the [Comcast] nets.” As for Zaz’s linear TV assets, Cahall wrote that while they could be spun off or sold, “it’s much more difficult than initial optimism might be implying.” The fact that WBD’s stock traded up some 15 percent on the news of the reorganization while its bonds traded down, he argued, implies that the market is expecting some sort of leveraged spinoff of these assets. But he thinks that private equity won’t be able to partner with WBD’s linear assets, even if Zaz gives them the green light. He reasons that at 4x 2025 estimated EBITDA of $6.7 billion, WBD’s linear assets (CNN, TNT and TBS, etcetera) would have a valuation of $27 billion—too rich for a private equity firm or even a group of private equity firms. I disagree with Steve, here. I believe Zaz could sell private equity a 30 percent stake in his SpinCo for $8.1 billion—a big check, yes, but not an insurmountable one, especially if a consortium of firms comes together for the deal. (After all, TPG is writing a check for $7.6 billion for the 70 percent of DirecTV it doesn’t already own.) Cahall also thinks that a 4x EBITDA purchase multiple may be too high an entry point for the savvy private equity crowd. I’ll concede that point. “Something well bought is half sold,” Gus Levy, the wily senior partner of Goldman Sachs, used to say. Cahall also thinks WBD’s bondholders would drive a hard bargain with Zaz in order to be offloaded onto the WBD spinco and would need “a lot of coaxing” to go along. He predicts 2x leverage on WBD’s spinco would be possible. If so, that would be something like $13.5 billion of debt, which would delever the remaining WBD to around $25 billion. Cahall predicted the remaining WBD, sans linear, would have EBITDA of $2.8 billion in 2025, a still-unattractive 9x leverage. He urged caution, at least for equity investors. “There is reason to be optimistic that Studios/D.T.C. could be valuable as both a stand-alone and takeout vehicle,” he wrote. “But, even using [Comcast’s] 15x multiple on Sky, it implies to us that much of the M&A potential for WBD is already priced in. We’re therefore loath to chase it here as we think a lot has to happen prior to monetization of a separation.”