Zaslav

Warner Bros. Discovery has modified Chief Executive David Zaslav’s contract for a second time this year to prepare for the company’s proposed breakup.

This month’s alterations were outlined in an SEC filing on Thursday — a week before initial bids are due in the Warner Bros. Discovery auction. Industry sources expect Paramount, Comcast and Netflix to make offers for the embattled entertainment company that owns HBO, CNN, Food Network and the storied Warner Bros. movie and television studios.

Warner Bros. Discovery declined to comment.

The sale kicked off in September when David Ellison-led Paramount made an unsolicited offer for Warner Bros. Discovery — a month after Ellison and RedBird Capital Partners had acquired Paramount from the Redstone family in an $8-billion deal. The company since has made at least three bids — but all were unanimously rejected by the Warner Bros. Discovery board, which viewed them as too low.

Paramount’s most recent solicitation for Warner Bros. Discovery was for $23.50 per share, which would value the company at about $58 billion.

The external jockeying for Warner Bros. Discovery set the stage for Zaslav and the Warner board to amend his employment agreement. The contract was revised Nov. 7 to clarify that various spin-off configurations would result in the same incentives for Zaslav.

Previously, his contract was amended to outline his compensation and incentives should the Warner Bros. studios and HBO Max spin off from the parent company, as envisioned when Warner announced its breakup plans in June. At the time, Zaslav planned to stay on to run the studios and streaming company, which would be called Warner Bros. in a nod to its historic roots and the pioneering days of the movie industry.

The plan was for the company’s two dozen cable networks, including CNN, TNT, Animal Planet and TLC, to remain behind and the company renamed Discovery Global.

The company is forging ahead with its breakup plans. However, it now plans to spin off the cable channels (Discovery Global) and keep the studios, HBO and the HBO Max streaming service as the surviving corporate entity (Warner Bros.).

“The amendment clarifies that if the separation is achieved by retaining Warner Bros. and spinning off Discovery Global (a ‘Reverse Spinoff’) rather than spinning off Warner Bros. … the Reverse Spinoff will be treated in the same manner … for all purposes of the Zaslav arrangements,” the filing said.

Previously, the company had envisioned that the split would be complete by Dec. 31, 2026. But a full-blown auction could upset those plans — and the transaction could close at a later date.

Zaslav’s contract was modified to extend his employment through December 2030. Previously, his contract was set to expire in December 2027.

“This extension is intended to secure Mr. Zaslav’s leadership of WBD for the same period that we had contracted to have him serve as the chief executive officer of Warner Bros. following a separation,” the filing said.

The Wall Street Journal was the first to report that nonbinding preliminary bids for the company are due Nov. 20.

Warner Bros. Discovery reported a $148 million loss in the third quarter, hitting a sour note as the company began fielding interest from would-be buyers as Hollywood braces for a transforming deal.

Earnings for the entertainment company that includes HBO, CNN and the Warner Bros. film and TV studios fell short of analyst expectations. A year ago, the company reported profit of $135 million for the third quarter.

Revenue of $9.05 billion declined 6% from the year-ago period. The company swung to a loss of 6 cents a share, compared to last year’s earnings of 5 cents a share.

Still, Chief Executive David Zaslav spent much of Thursday’s call with analysts touting his company’s underlying strengths — while avoided giving details about the company’s sale.

“It’s fair to say that we have an active process underway,” Zaslav said.

Warner Bros. Discovery on Thursday reiterated it is forging ahead with previously announced plans to split into two separate entities by next spring. However, the Warner board acknowledged last month that it was also entertaining offers for the entire company — or its parts — after David Ellison’s Paramount expressed its interest with formal bids.

Paramount has made three offers, including a $58 billion in cash and stock for all of Warner Bros. Discovery. That bid would pay Warner stockholders $23.50 a share.

The Ellison family appears determined to win one of Hollywood’s most storied entertainment companies to pair with Paramount, which the Ellisons and RedBird Capital Partners acquired in August.

But Warner Bros. Discovery’s board, including Zaslav, voted unanimously to reject Paramount’s offers and instead opened the auction to other bidders, which is expected to lead to the firm changing hands for the third time in a decade.

Board members are betting the company, which has shown flickers of a turnaround, is worth more than the offers on the table. Despite its rocky third-quarter results, Warner’s stock held its ground in early morning trading at around $22.60 a share.

“Overall we are very bullish,” Zaslav said of the company’s business prospects.

“When you look at our films like ‘Superman,’ ‘Weapons’ and ‘One Battle After Another,’ the global reach of HBO Max and the diversity of our network’s offerings, we’ve managed to bring the best, most treasured traditions of Warner Bros. forward into a new era of entertainment and [a] new media landscape,” he said.

But the company’s results underscored its business challenges.

The studio witnessed a major decline in advertising revenue in the third quarter, reporting $1.41 billion, down 16% from the previous year, which executives attributed to declines in the audience for its domestic linear channels, including CNN, TNT and TLC.

Distribution revenue also took a hit, as the company reported sales of $4.7 billion, a decrease of 4% compared to last year.

Studio revenue increased 24% to $3.3 billion, powered by the success of DC Studios’ “Superman,” horror flick “Weapons” and the latest installment of “The Conjuring.” But even those box office wins couldn’t totally offset shortfalls in other areas of its content business.

Last year, the company was able to sub-license its rights to broadcast the Olympics in Europe, which pushed content revenue to $2.72 billion. But this year, revenue was down 3% to $2.65 billion.

Burbank-based Warner Bros. has had a string of success in theaters, with nine films opening at the top spot globally at the box office. The studio recently surpassed $4 billion in worldwide box office revenue, making it the first studio to do so this year. Warner Bros. last achieved that milestone in 2019.

Zaslav would like to continue with Warner’s break-up plans, which were announced last June.

The move would allow him to stay on to manage a smaller Hollywood-focused entity made up of the Warner Bros. studios, HBO, streaming service HBO Max and the company’s vast library, which includes Harry Potter movies and award-winning television shows such as “The Pitt.”

The company’s large portfolio of cable channels, including HGTV, Food Network and Cartoon Network, would become Discovery Global and operate independently.

Beyond Paramount, Philadelphia-based Comcast, Netflix and Amazon have expressed interest in considering buying parts of the company.

The company said its third quarter loss of $148 million was the result of a $1.3 billion expense, including restructuring costs.