John Malone, the billionaire media mogul who is a longtime stakeholder in Discovery, said its pending merger with WarnerMedia will incur debt but will make up for it in cost savings.“Leverage is relatively high for this [merged] company, but interest rates are quite low,” he told Liberty Global CEO Mike Fries, when asked about debt. “This is investment-grade debt, long-term. The rate at which free cash flow will pay down that debt as well as the synergies” will help satisfy investor concerns, he added.The companies expect the merger to close by mid-2022. Fries noted estimates that Discovery and WarnerMedia’s debt would be about four-and-a-half times trailing earnings, which is on the high side. (That leverage ratio is in the range of where AT&T’s was after it swallowed Time Warner and DirecTV, deals it is in the process of unwinding through spinoffs.)Cost savings, Malone countered, will “easily go past” $3 billion to $4 billion a year. The major overlap between the merging companies is in cable programming and streaming, with the Turner networks, Discovery+ and HBO Max able to share resources.Synergy forecasts of $2.5 billion when AT&T bought Time Warner resulted in the departures of more than 1,000 workers amid several major rounds of restructuring. “It’s a big synergy combination,” Malone said.There has been no commentary from the companies about layoffs, not surprisingly, as the deal winds its way through the regulatory process. David Zaslav, the Discovery CEO who will also lead the combined company, is a “force of nature,” Malone added.“I’ve never seen a guy with more energy and I think he’s extremely confident. If there’s anyone who can pull off this kind of combination, it would be David.” Malone turned 80 earlier this year. He said while his health remains good, Covid has prevented him from attending many things in person, even the Braves’ World Series win last month.The conversation covered a wide range of topics, from General Electric’s breakup earlier this morning to inflation forecasts to the effects of Covid. One theme Malone is often asked about is the state of investment in broadband and cable infrastructure. Along with his background as an early cable pioneer, Malone remains a major investor in Charter Communications, which faces, along with other broadband and telecom players, capital expenditure challenges to keep pace with technology shifts.“The existing cable infrastructure, as I know it, is in a good position” to add capacity for latency reduction, edge computing and other emerging needs, Malone said. “There’s all kinds of reserve technology that’s available to the incumbents who have built robust networks. The challenge will be, as these new applications show up, will companies be able to help drive and support those applications?”
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