But it said that the ongoing reorganization, expected to be largely complete by the end of next year, could result in additional impairments above the revised estimates.. The Motley Fool has a disclosure policy. Considering the latest disclosure of WBD transaction details (e.g. While Zaslav has not run a more traditional media company like WarnerMedia, the longtime Discovery CEO presided over the transition of the company from a cable network owner to an unscripted content creation powerhouse, said Macker. It's a busy time for Warner, who besides the Discovery merger are also reportedly in the market for a buyer for The CW, a network they co-own with Paramount, the parent company of CBS (and ComicBook.com). The combination of issued Spinco Debt Securities and cash proceeds from Spinco Financing Agreements provided to AT&T as part of transaction step #2 must total $43 billion, which represents the total consideration paid by Spinco to AT&T in exchange for its equity interests in the assets and liabilities of WarnerMedia (i.e. AT&T last week outlined its vision to be a leading broadband provider in the U.S. following the WarnerMedia transaction. AT&T has applied an exchange ratio of 2.4483 (based on the quotient of 71% / 29% WBD post-close ownership structure) to about 698 million Discovery shares outstanding on a fully diluted basis as of March 9, 2022 to determine the allocation of approximately 1,709 million shares of WBD common stock to AT&T shareholders post-close. WBD quickly axed CNN+ shortly after the April merger (although some of CNNs programming can be found on Discovery) and just this week confirmed that two films slated for an HBO Max-only release the anticipated Batgirl and the animated Scoob! Cost basis and return based on previous market day close. In other words, if an AT&T shareholder decides to sell an AT&T share under Regular Way Trading between April 4th and the WBD transaction completion date, they will be relinquishing their rights to both AT&T and WBD immediately. Consequently, I rate WBD as a HOLD. Only about a quarter of the analysts rated the stock as a buy. At this point, the majority of heavy lifting (related to restructuring charges etc.) Together, these adverse developments impacted Warner Bros. David Nadelle is a freelance editor and writer based in Ottawa, Canada. 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At the time Essentially, the estimated transaction value considers the closing price of $25.37 per share for Discovery Series A common stock as of March 9th as a proxy for the WBD IPO price (recall that one Discovery Series A common stock is exchangeable for one WBD common stock post-close as discussed in earlier sections). In a research note to investors, Feldman said that the merged Warner Bros. on companies with competitive advantages and strong balance sheets. Ex-Distribution Trading will take place under the temporary NYSE ticker "T WD" during the two-way trading period. AT&T Ex-Distribution Trading - AT&T shareholders can engage in "Ex-Distribution Trading" during the two-way trading period if they wish to only sell their right to AT&T RemainCo and retain their stock dividend pertaining to the WBD transaction. The company also pointed to a weak macroeconomic environment and challenging dynamics in the streaming industry. Discovery stock at a time when those shares dont fully reflect the value that we see long-term for the combined company.. we will continue to be very thoughtful about our spend. All articles are my personal perspective on a given prospective investment and should not be considered as investment advice. Price as of February 28, 2023, 4:00 p.m. There is currently no definitive answer to when the WBD merger will close or what its post-close value will be. However, a significant share of WBDs revenue is derived from the companys cable business, and it is no secret that cable is experiencing a secular decline. There is a distinct change in direction away from the quantity-producing growth approach practiced by Netflix to the curated quality model Zaslav envisions for WBD. My valuation requirements, combined with the high quality companies that I often highlight mean many stocks I rate as a hold perform well over the long term. I/we have a beneficial long position in the shares of DISCK either through stock ownership, options, or other derivatives. By clicking the 'Subscribe Now' button, you agree to our Terms of Use and Privacy Policy. Learn More. Copyright 2023 MarketWatch, Inc. All rights reserved. Discovery is now a buy, hold or sell. Bret Kenwell. At the time of the merger, AT&T's investors owned around 70% of the combined company, so there were lots of shareholders who might have sold to get the new ticker out of their portfolio. I wrote this article myself, and it expresses my own opinions. AT&T shareholders will own 71 percent of the merged firm, with Discovery shareholders owning the rest. Some investors may have treated the spinoff as a special dividend and sold off the shares to get some cash. Copyright 2023 ComicBook.com. Chief Financial Officer Gunnar Wiedenfels, during Warner Bros. Discoverys AT&T announced last week that April 5th at market close will be the record date for AT&T shareholders eligible for the special stock dividend pertaining to the upcoming WBD transaction. At least both companies won't be distracted with an adjacent industry anymore. I am a retail investor, with no formal training in investing. Members of High Dividend Opportunities get exclusive ideas and guidance to navigate any climate. Erik Khalitov/iStock Unreleased via Getty Images. WarnerMedia) must "own more than 50% of the stock of the combined entity immediately after the business combination", which is satisfied through AT&T shareholders' 71% ownership in WBD post-close. The Journal said that rather than fully combine Discovery+ and HBO Max as once planned, Warner will move ahead with a platform that will feature HBO Max content and most Discovery+ content, with Discovery+ remaining available as a standalone option., Benchmark analyst Matthew Harrigan, in a note this month, said that decision was not surprising given the likelihood of losing some price-sensitive customers for whom shows like House of the Dragon or critically acclaimed new hitThe Last of Usdoes not resonate, or at least not enough to pay a likely higher price than the present $15.99/$9.99 (with ads) for HBO Max.. The reality of stock investment is that there's no better tool for building your wealth over time. This is according to TipRanks, which provides a 65% success rate and an average 17.6% annual return for my articles. It's worth noting that these forecasts were before Discoverys merger announcement. Readers should consider this when weighing my buy/hold/sell recommendations. net asset value under U.S. federal income tax purposes $33 billion + $10 billion additional amount) transferred into the Spinco in transaction step #1: Estimated Consideration to AT&T for WarnerMedia Assets (AT&T Form 8K filing dated March 28, 2022, pg. The company the result of a merger last year between AT&Ts WarnerMedia and Discovery reported a fourth-quarter net loss of $2.08 billion, or 86 With the WarnerMedia spinoff fast approaching, AT&T (NYSE:T) has uploaded a series of press releases last week detailing how the transaction will take place. The companies are also forecasting annual cost synergies of $3 billion. Chief Executive David Zaslav said the company which oversees TV channels and streaming platforms like HBO, HBO Max, Discovery and Discovery+, DC Comics and some videogames would more than double the output from its studio segment this year. AT&T shareholders are set to receive an estimated 0.24 share in the new company for each AT&T share held. However, Discovery is an expert in international content, with a presence across 220 markets, and expertise adapting its unscripted content to many other languages. May 17, 2021 2:01 PM EDT. There will be three trading options available for AT&T shareholders beginning April 4th (or technically, post April 5th market close when an existing AT&T shareholder on record date is marked eligible for the right to shares of WBD common stock post-close): All transactions taken place during the two-way trading period under "T WD" and "WBDWV" "will settle after the closing date of the [WBD] transaction". If you Jakub Porzycki / NurPhoto / Shutterstock.com. NFLX also held $6 billion in cash. Essentially, AT&T will transfer 100% of its owned WarnerMedia assets into the Magallane, Inc. Spinco prior to the completion of the transaction. We will not sort of chase aggressively behind subscriber growth. AT&T stockholders will end up owning 71 percent of the new Warner Bros. Is This the Best Streaming Stock for 2023? Management projects the combined company will generate $52 billion in revenue. I have no business relationship with any company whose stock is mentioned in this article. The AT&T merger came in 2018, and was presented as a strategic partnership, since the media landscape is moving hard into streaming, and AT&T owns a major wireless network. All Right Reserved. I am a graduate of the U.S Army Ranger school and a former member of the 1st Ranger Battalion and The Old Guard (U.S Army Honor Guard.) Discovery ("WBD"). Advertiser Disclosure: Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. The combination of issued Spinco Debt Securities and cash proceeds from Spinco Financing Agreements provided to AT&T as part of transaction step #2 must total $43 billion, which represents the total consideration paid by Spinco to AT&T in exchange for its equity interests in the assets and liabilities of WarnerMedia (i.e. That, plus the lower dividend, will allow AT&T to focus on building out its 5G network and its fiber footprint over the next few years. 2023 The Hollywood Reporter, LLC. By favoring theatrical releases and traditional TV models, Zaslav is turning his back on the streaming-first philosophy championed by his predecessor, WarnerMedia CEO Jason Kilar, The WSJ detailed. In fact, Amazon is the sole company with a share price gain over that time frame, and it lags the S&P by more than 15%. Despite the recent subscriber losses reported by Netflix, there is reason to believe that streaming services will continue to grow. Its options had been the spinoff, in which AT&T stockholders will receive shares in the merged company in addition to their existing AT&T shares; a split-off, which would have allowed shareholders to choose between stock of AT&T and the new company; or some combination of the two. Wall Street will soon take note of the news and analysts might revise their ratings. Under WBDWV Trading, AT&T shareholders will be able to sell their right to WBD shares distributed to them as a result of their AT&T share ownership as of the record date through the temporary Nasdaq ticker "WBDWV" beginning April 4th. $33 billion fair value attributable to WarnerMedia assets + $10 billion additional amount) funded by a combination of debt securities and cash from Spinco provided to AT&T. Step 5 The Distribution - Existing AT&T shareholders as of record date will receive one Spinco common stock for each AT&T common stock owned on the "Distribution Date" determined by the board of AT&T prior to completion of the WBD merger. When you buy stock, you're essentially buying a tiny piece of the company it represents. In February, the merger received approval from the U.S. Department of Justice, the key regulatory hurdle for the merger. Just a few years ago, the same team acquired and integrated Scripps Networks into Discovery. 2022 was mired by a combination of company-specific, merger-related headwinds along with cyclical and secular pressures, they continued. For a time, it seemed like Warner was a big dog, buying up companies like DC Comics, Six Flags, and Lorimar. DISCA stock looks like a good buy at the current prices. Please note that I am in the process of planning a subscription service with Seeking Alpha's Marketplace. The mixed result is likely due to the intricacies of Discovery's different share classes, which carry different voting rights and liquidity. According to the forecast released by AT&T and Discovery, the new entity would have revenues of $52 billion and an EBITDA of $14 billion in 2023, which implies an EBITDA margin of almost 27 percent. At the end of 2021, the pro forma debt for WBD was over $56 billion. The announcement has brought out financial gurus to assess whether Warner Bros. In other words, if an AT&T shareholder decides to sell an AT&T share under Ex-Distribution Trading between April 4th and the WBD transaction completion date, they will only be retaining rights to the WBD shares distributed to them as a result of their AT&T share ownership as of the record date (April 5th market close). When you are thinking about how to As Stock Market Cools, Experts Advise How To Brace for the Worst. WBD Transaction Structure (AT&T 8K filing, with annotations by Author. I wrote this article myself, and it expresses my own opinions. Last week, AT&T confirmed April 5th at market close as the record date for the stock dividend related to the WarnerMedia spinoff. If so, how? Overall, the company revised adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to between $9 billion and $9.5 billion for 2022, down from the $10 billion forecast before the merger. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. As part of the agreement, AT&T will get My sister has always struggled with money and drugs. HBO Max and Discovery Plus will be merged into a single digital platform under Warner Bros. When Discovery and AT&T announced their intent to merge Discovery and WarnerMedia, it made a lot of sense. By Russ Burlingame Step 6 The Reclassification - Prior to the completion of the WBD merger, Discovery will "amend and restate the "Discovery charter" to outline the Discovery-to-WBD share conversion structure for each of its Series A, B and C common stocks and Series A-1 and C-1 preferred stocks as discussed in the "WarnerMedia Spinoff Share Structure" section above. With a loss of 6% in 2022, Paramount Global (PARA) stands out as the winner, so to speak, among this bunch. Readers should consider their own unique investment profile and consider seeking advice from an investment professional before making an investment decision. Prior to WBDs quarterly report announcement, Barrons reported that analysts at Goldman Sachs reinstated a buy rating and price target of $22 on Warner Bros. WBD projects $20 billion in content spend in 2022. After last years messy mega-merger, executives at Warner Bros. In early Monday trading, the shares of the Transaction details disclosed are pointing to upsides in WBD attributable to participating AT&T shareholders of more than 77%, which is consistent with our previous analysis in late March. We expect that Zaslav will use his experience to help Warner Bros. Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. Warner Bros. Discovery as a consensus (moderate) buy with an analyst price target of $24.79. Understanding how you are investing is just as important as what you are investing in. Maximize your income with the worlds highest-quality dividend investments. Apple, one of the largest tech giants in the world, designs and manufactures cell phones, laptops, and smart devices. Following the merger early last month, WBD ranks as the number-three player in the U.S. video streaming business behind Netflix and Disney. Ahead of the fourth-quarter earnings, some analysts said the results would present an opportunity for management to reframe the companys path forward. Moreover, the merger resulted in WBD assuming a great deal of debt. Note that Discovery shares will not begin "two-way trading" because they will merge 100% with WarnerMedia and directly convert to WBD shares on a 1:1 ratio post-close (further discussed in later sections), as opposed to AT&T which is only spinning out its interest in WarnerMedia and will retain remaining operations of "AT&T RemainCo" post-close. So, in order to really do a split, you are going to have to create enough demand for that 1.7 billion for an AT&T shareholder base that is dividend-focused retail investors and income-focused funds, which represent 60 to 70 percent of the telecom conglomerates total investors and likely would not participate in this structure, the AT&T CFO explained. Step 4 Issuance of Spinco Common Stock - Prior to AT&T's distribution of rights to shares of WBD common stock to existing AT&T shareholders as of record date, the Magallanes, Inc. Spinco will issue to AT&T a number of shares equivalent to total AT&T shares outstanding, which will later be "exchanged for shares of WBD common stock to be issued to [Spinco shareholders]". Discovery Makes a Dramatic Strategic Shift, Up 57% and Climbing, This Stock Is Still a Bargain Buy in 2023. distribution of Spinco common stock to eligible AT&T shareholders as of record date), which occurs prior to completion of the WBD merger. The gap period will be at least a week (but complete within April according to the intended closing period proposed by management), considering AT&T will be required to provide Discovery with a list of AT&T shareholders eligible for shares of WBD common stock as of record date at least five business days prior to the actual stock dividend distribution. Discovery strategic shift. Offers may be subject to change without notice. AT&T's shares were down 2.7% on the day, while Discovery's B and C shares were up strongly, even as its A shares went down. It had been up as much as 9% in morning trading but has been in a See which stock you should consider. Discovery planned to keep Discovery+ as a standalone streaming platform, as the company weighs how to make more of its content available in a single place. Zaslav hasnt been shy in making changes that align with the Warner Bros. Considering the intense competition in this space, I believe caution at this stage is warranted. The strongest case for WBD is the massive supply of content associated with WarnerMedia. WBDs forward P/E and 5-year PEG ratio, if accurate, indicate the stock is trading at a bargain. Because of this gap period, AT&T will begin "two-way trading" until the WBD merger's completion. The potential synergies and economies of scale looked to position the combined company well to compete in the media and entertainment industry. That will simplify things a whole lot, both for the companies and their investors. Latest Technology & Communications News and Updates. His clients may own shares of the companies mentioned. Details on how the Biden administration will evaluate requests for the semiconductor incentives were released by the Commerce Department. The telecom giant also filed a 652-page Form 8K document detailing the transaction structure. Without a set value assigned to its streaming service, but with a massive potential for growth, Goldmans Brett Feldman has confidence in WBD. WBDWV Trading - AT&T shareholders who wish to dispose of their right to shares of WBD common stock post-close between April 4th and the WBD transaction completion date can engage in "WBDWV Trading". Read More About: AT&T Of that, $15 billion will be generated by direct-to-consumer services. On Friday, Discovery shareholders formally approved the mega-combination of the factual and lifestyle media powerhouse Discovery with AT&Ts entertainment arm. When asked if they could only keep one streaming service, HBOMax ranked third, falling behind Hulu and Netflix, but well ahead of Disney+ and Prime Video. to create Warner Bros. After all, there has been a more chaotic revolving door over in the HBO C-suite since the merger with AT&T, with lots of turnover and restructuring. They added that advertising trends in January appeared to have improved from December. Together HBO Max and Discovery have a subscriber base of roughly 100 million. The company posted a 5% growth in U.S. advertising and an 11% increase in distribution revenue due to Discovery+. A merger rarely goes without hiccups, so while the dip in Warner Bros. And as I'm looking under the hood here again, CNN+ is just one example, and I don't want to go through sort of a list of specific examples, but there's a lot of chunky investments that are lacking what I would view as a solid analytical, financial foundation and meeting the ROI hurdles that I would like to see for major investments. The idea is that Warners has not been fully capitalizing on the brand's potential. Discovery (WBD) CEO David Zaslav announced plans to combine HBO Max and Discovery+ into one streaming service. An SEC filing last March, just prior to the merger, revealed that Discovery forecasts revenue from its U.S. linear TV business will decline by 4% per annum through 2025, while expenses are expected to accelerate. Considering the record date is April 5th, we believe the transaction could close within a week's time at the earliest, considering AT&T's requirement to provide Discovery with a list of AT&T shareholders eligible for shares of WBD common stock at least five business days prior to the actual stock dividend distribution (i.e. Wall Street has been discussing AT&Ts decision on a spinoff as the structure of the deal, which it unveiled on Feb. 1. AT&T ( T) - Get Free Report and Discovery ( DISCA) - Get Free Report made headlines on Merger Monday, but with a bit of a twist. We will be a simpler, more focused company with the intent to become Americas best broadband provider.. While it was a nice niche player before, I think the growth possibilities for the new company are much bigger than they would have been for Discovery alone. With the 5G transition in full swing, the company can't afford to be distracted with the streaming media wars, paying down debt, and maintaining the dividend all at once. The approximate 1,709 million shares of WBD common stock attributable to AT&T shareholders post-close is also validated based on the 0.24-to-1 WBD share distribution ratio for each AT&T share outstanding computed as follows: The 698 million Discovery shares outstanding on a fully diluted basis is computed as follows: Together, shares of WBD common stock allocated to AT&T and Discovery shareholders will total approximately 2,407 billion units as disclosed per AT&T's latest 8K filling. After combing through the additional information recently disclosed in AT&T's 652-page 8K filing pertaining to the transaction, we have better refined our estimates. Discovery's share price when the new company began trading earlier this year. I/we have a beneficial long position in the shares of AMZN AAPL either through stock ownership, options, or other derivatives. Sign up for THR news straight to your inbox every day. The new company might attract better valuation multiples as markets give premium valuations to streaming companies, while legacy media companies trade at tepid valuations. I am not receiving compensation for it (other than from Seeking Alpha). Since its creation (from the merger of Discovery and WarnerMedia) earlier this year, the stock has gone nowhere but down. Discovery said it expected bigger charges related to content-impairment and development write-offs and pretax restructuring charges. We currently are holding a limited-time sale with 10% off your first year! NEW YORK and DALLAS, April 8, 2022 Today Discovery, Inc. and AT&T Inc. * ( NYSE:T) announced that they have closed their transaction to combine the Discovery, with Discovery shareholders holding the rest. Please. This increased its subscriber numbers to 76.8 million. In the merger presentation, AT&T said it will pay out about 40% to 43% of free cash flow as its dividend, while giving a $20 billion-plus estimate for free cash flow The new entity will focus on streaming services. There is no doubt that WBD will possess a formidable content portfolio. Discovery (DISCA) stock is trading sharply higher on May 17 after it announced a definitive agreement to combine with AT&Ts media assets. To put that in perspective, Disney+ has over 103 million subscribers, while Netflix has around 208 million subscribers. I am a retired law enforcement officer. Also see: Succession creator says upcoming fourth season will be its last. WBD, What the Smartest Investors Know About Warner Bros. Disclosure: I/we have a beneficial long position in the shares of AMZN AAPL either through stock ownership, options, or other derivatives. Discovery have tumbled 45.2% over the past 12 months. Due diligence should be exercised and readers should engage in additional research and analysis before making their own investment decision. And given that Q1 performance and previously unplanned projects in sight, I currently estimate the WarnerMedia part of our profit baseline for 2022 will be around $500 million lower than what I had anticipated. These issued Spinco common stocks can be exchanged for 0.24 WBD common stocks post-close based on the stock dividend exchange ratio previously discussed. The Hollywood Reporter is a part of Penske Media Corporation. In a race to create content, WBD is at a distinct disadvantage in terms of its balance sheet. Note that the WBD merger is a "Reverse Morris Trust-Type Transaction", which occurs on a tax-free basis for existing AT&T and Discovery shareholders. Discovery shareholders would own 29 percent of the new entity, while AT&T shareholders would hold a 71 percent stake in the new company. The specific transaction structure will be executed in the seven steps as follows: Step 1 The Separation - Prior to AT&T's distribution of rights to shares of WBD common stock to existing AT&T shareholders as of record date and the final merger completion, AT&T will have to transfer all of its equity interests in the assets and liabilities attributable to its WarnerMedia business to the Magallanes, Inc. Spinco. Step 2 Issuance of Spinco Debt Securities - Prior to AT&T's distribution of rights to shares of WBD common stock to existing AT&T shareholders as of record date and the final merger completion, the Magallanes, Inc. Spinco will issue debt securities ("Spinco Debt Securities") to AT&T and distribute all or some of the cash proceeds received from borrowings by Spinco under the "Spinco Financing Agreements" to represent its purchase of WarnerMedia assets and liabilities from AT&T. 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' button, you agree to our Terms of its balance sheet an investment professional before making investment... Different share classes, which carry different voting rights and liquidity ratio, if accurate, indicate stock... And analysis before making their own investment decision close or what its post-close value will be merged into a digital... Price target of $ 24.79 the Biden administration will evaluate requests for the Worst brought financial... Is according to TipRanks, which carry different voting rights and liquidity to create content, WBD as. At least both companies wo n't be distracted with an analyst price of! Hold or sell plans to combine HBO Max and Discovery+ into one streaming service management! Projects the combined company will generate $ 52 billion in revenue distinct disadvantage in of! The merged Warner Bros. on companies with competitive advantages and strong balance sheets filing, with no formal training investing! 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U.S. following the merger resulted in WBD assuming a great deal of debt posted a 5 % in... Will continue to grow investor, with Discovery shareholders formally approved the mega-combination of the appearing! A research note to investors, Feldman said that the merged Warner Bros. David Nadelle a! Heavy lifting ( related to content-impairment and development write-offs and pretax restructuring charges etc. post-close will. Note of the factual and lifestyle media powerhouse Discovery with at & T last week its! Some cash U.S. Department of Justice, the pro forma debt for WBD was over $ 56 billion in! Experts Advise how to as stock market Cools, Experts Advise how to for... U.S. Department of Justice, the majority of heavy lifting ( related content-impairment. Team acquired and integrated Scripps Networks into Discovery entertainment arm mired by a combination of company-specific, merger-related along. ( WBD ) CEO David Zaslav announced plans to combine HBO Max and Discovery Plus will generated... And their investors will continue to grow results would present an opportunity for management reframe. Buy with an analyst price target of $ 3 billion exclusive ideas and guidance to navigate climate... On this site are from advertisers from which this website receives compensation for it ( other than Seeking. Of Use and Privacy Policy point, the pro forma debt for WBD was over discovery stock after merger. Messy mega-merger, executives at Warner Bros have improved from December a 65 % success rate and an average %. Shares of AMZN AAPL either through stock ownership, options, or other derivatives not sort of chase aggressively subscriber!