Your value newsletter today takes the form of our third lesson in corporate break ups, and their stock splits. Casting off pieces of a company to receive water and proper fertilizer to someday soon grow up on their own. This one may get messy if they reach the finish line.
In the past few months, Stock Talk covered how General Electric split in early 2024, and how nice that turned out. Then we provided what the Honeywell split might look like and although not the grand slam that GE turned out to be, solid looking value for two of the three new entities for 2026. BTW we started picking up HON at $201 pre spilt currently at $221.22 at this writing, 10% uplift if it holds.
Now we are faced with a third (possible) split, and we want to show you how this one is a little more of a stretch and more likely to be tough to gain value from. Part of this bet is that there are only two organizations in the end – not three like the others (HON & GE). Finally, part of the bet on WBD is the debt load that has to dealt with, more on that in a bit.
Mayhem in media, or a masterstroke in the making? Let’s break it down before it breaks apart.
🎬 The Setup: When a Giant Stumbles, It Looks for Lighter Luggage
Warner Bros. Discovery (WBD) is to separate its fading-but-profitable linear TV networks (think CNN, TNT, Discovery) from its high-growth but cash-guzzling Hollywood and streaming assets (HBO, Warner Bros. Studios, and Max).
This wouldn’t be the first time a media titan trims the fat. It’s not even the fifth. But it might be one of the smarter ones—if they do it right.
🔍 What’s Really on the Table?
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These cable channels still throw off cash but are in terminal decline.
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Content & Streaming – This is the future. But “the future” is expensive and still finding its footing with margins. HBO and Warner Bros. are cultural gold mines—but that doesn’t mean they’re finding actual gold.
The idea is that by breaking them apart, investors can pick their poison (or their prize): stable income or high-growth potential.
📊 Why This Could Be Great for Investors (Pre-Split)
1. Focus, finally:
Management can stop playing corporate octopus and run a simpler, focused businesses. Analysts like that. Shareholders love that.
2. Clearer valuation:
Right now, WBD trades like a bargain-bin bundle. You don’t know what you’re really buying. A split could give clarity: here’s the cash cow, here’s the growth rocket.
3. Debt detox (maybe):
This one depends on execution. If they shovel most of the debt onto the linear business while unshackling the growth engine, it could unlock huge upside. Just don’t expect fairness—Wall Street doesn’t do even splits; it does strategic ones.
4. The Activist Dream:
This is the kind of shake-up activist investors pray for. If you’re long WBD and the breakup works, you might ride the wave of institutional inflows that follow.
🧨 And Why It Could Blow Up
1. Execution risk is real:
Breaking up isn’t just emotional—it’s logistical. Systems, management, licensing, debt, legal teams, tech stacks… it’s not just a clean cut. It’s a scalpel job.
2. Debt shell game:
This could backfire if investors feel one entity got stuck holding the bag (aka the $40B+ debt pile). If the market senses that one spin-off is just a glorified bankruptcy waiting to happen, both stocks could tank. I say give the debt to the legacy cable network.
3. Weak tailwinds:
Let’s face it: media is tough. Even standalone HBO is fighting uphill against Netflix, Apple, Amazon. ESPN is about to charge $29.99 a month, ugh. And linear TV is the land of sunset valuations
4. Tax complexity and spin mechanics:
If this is a tax-free spin-off (Section 355 of the IRC), it needs careful structuring. Get it wrong, and Uncle Sam eats half the pie before investors get a bite.
Day-After Valuation: Example
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WBD Networks trades at $6/share (decline in value, reflects legacy assets).
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WBD Studios opens at $16/share.
Your new position:
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100 shares of WBD Networks Co. at $6 = $600
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25 shares of WBD Studios Co. at $16 = $400
Still worth $1,000, on paper. But now the market gets to value them separately. If Studios proves to be the growth juggernaut analysts expect, those $16 shares could return the payment pretty fast. either way there is a lot of debt to manage in the after split, remember $40B. One possibility is to sell more shares, and in the process dilute one or both companies, for the interim. This may be worth our bet as that entry price is low, currently $9 a share.
✍️ Final Word
Breakups in corporate America are like breakups in real life: messy, dramatic, expensive, and usually followed by someone reinventing themselves on Instagram. For Warner Bros. Discovery, this could be the makeover moment Wall Street’s been waiting for—or another sequel nobody asked for.
Either way, investors should watch the structure. If the Studios spin is clean, debt-light, and growth-heavy, it may become a streaming contender. If it’s a balance-sheet dumpster fire? Bail early.
WBD might be about to write its biggest plot twist yet. Just make sure you’re not stuck in the background when the outtakes and credits roll.
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