To make the world smarter, happier, and richer. ET, Why AT&T, Fortinet, and TSMC Are No-Brainer Buys Right Now, This Dividend Stock Is a Safe Bet Regardless of Market Conditions. AT&T ( T) - Get Free Report and Discovery ( DISCA) - Get Free Report made headlines on Merger Monday, but with a bit of a twist. In his first earnings report since an April merger created one of the largest media companies in the U.S., on Aug. 4 Warner Bros. 111). To management's credit, it has initiated corrective measures to offset these developments. In 1989, Warner merged with Time Inc., publishers of Time and Life magazines, who were almost immediately forced to buy Warner Bros. after a hostile takeover attempt by Paramount (who, funny enough, wanted Time, not Warner). It had been up as much as 9% in morning trading but has been in a 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]". Price as of February 28, 2023, 4:00 p.m. Cost basis and return based on previous market day close. Stephen Fry to Host Jeopardy! for ITV in U.K. Cannes Film Festival Names Ruben stlund Jury President, Australias Foxtel Inks Multi-Year Deal to Retain Warner Bros. If you have an ad-blocker enabled you may be blocked from proceeding. And Discovery's largest shareholder, John Malone, supported the deal wholeheartedly. Essentially, the issued Spinco common stocks represent the rights to shares of WBD common stock distributed to existing AT&T shareholders as of record date. 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 After last years messy mega-merger, executives at Warner Bros. Of course, the numbers behind the earnings report pertain to the former Discovery, Inc; however, management provided some important metrics related to WarnerMedia, as well as some relevant commentary. ), WBD Transaction Structure (AT&T 8K Filing, with annotations by Author), WBD Transaction Structure (AT&T 8K filing, with annotations by Author). The companies are also forecasting annual cost synergies of $3 billion. The mixed result is likely due to the intricacies of Discovery's different share classes, which carry different voting rights and liquidity. Zaslav hasnt been shy in making changes that align with the Warner Bros. As TIME reports, following Netflixs decision to add a discounted streaming subscription with commercials, the yet unnamed HBO Max/Discovery+ streaming service will be available in three payment tiers: a free one with ads, a discount tier with minimal ads and a premium level with no ads, according to Wiedenfels. 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. With over 40 individual picks yielding +7%, you can supercharge your retirement portfolio right away. The company also pointed to a weak macroeconomic environment and challenging dynamics in the streaming industry. The Motley Fool recommends Warner Bros. (I update this score on at least a quarterly basis for readers.). 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. 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. *Average returns of all recommendations since inception. Bill Peters is a Los Angeles-based MarketWatch reporter who covers earnings. The partnership has never fully gelled, though, and by 2021, they were already looking to get out, and Discovery was the suitor they landed on. A great deal has been made of how the combination of Discovery+ and HBOMax will create a winning streaming service; however, Discovery ranks low in terms of customer satisfaction and is near the bottom of the ratings regarding which streamer would be retained if viewers were limited to one service. The conversion will ultimately result in 71% AT&T shareholder ownership in WBD, with the remaining 29% ownership in WBD attributable to Discovery shareholders. On the closing date of the transaction, anticipated to be in April, AT&T shareholders will receive, on a tax-free basis, an estimated 0.24 shares of stock in Latest Technology & Communications News and Updates. Discovery, they discovered that the previous management had been overly optimistic with their projection of Warner Bros. prospects. Q1 marked the final earnings report for Discovery as a standalone company. Last week, AT&T confirmed April 5th at market close as the record date for the stock dividend related to the WarnerMedia spinoff. 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. The Wall Street Journal this month reported that Warner Bros. Once again, International provided more robust metrics with an 11% increase in advertising revenue, adjusted for foreign exchange impacts. What's been going on and is now the time to sell out of the stock? Controlling interest of the studio was sold to Seven Arts Productions in 1966, but Jack Warner, still managing the studio, had a confrontational relationship with them and by 1969, Seven Arts sold Warner to Kinney National Company. Discovery (NASDAQ:WBD) has slipped over 20%, Comcast (CMCSA) is down about 18%, shares of Disney (DIS) and Amazon (AMZN) have both fallen around 25%, and Netflix (NFLX) takes the proverbial cake, with a stock price that plummeted over 65%. Discovery a Buy? Warner Bros. 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. The streaming media and telecom worlds were shaken Monday, when AT&T (T -0.63%) announced it would be spinning off its WarnerMedia division and combining it with Discovery (DISCA) (DISCK). 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. Discovery (WBD) CEO David Zaslav announced plans to combine HBO Max and Discovery+ into one streaming service. The Motley Fool owns shares of and recommends Netflix. Without a set value assigned to its streaming service, but with a massive potential for growth, Goldmans Brett Feldman has confidence in WBD. Discovery in a merge that equates to a $43 billion transaction. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). Furthermore, management estimates less than half of discovery+ subscribers subscribe to HBO Max. James Gunn Reveals New Superman, Batman Movies and More, Warner Bros. Market Realist is a registered trademark. At least give management a few quarters to execute their strategies. Under the terms of the deal, WarnerMedia retained $43 billion in debt. takes the proverbial cake, with a stock price that plummeted over 65%. Please disable your ad-blocker and refresh. ) The merger with Discovery has the above-stated benefits for AT&T, including significantly reduced debt. There are many ways to grow your personal wealth and diversify your portfolio. For a time, it seemed like Warner was a big dog, buying up companies like DC Comics, Six Flags, and Lorimar. A total of 26.26 million student loan borrowers have applied or were deemed automatically eligible for relief under President Joe Biden's student loan forgiveness program, and there are 16.48 million Students who received a Pell Grant to help pay for college could be eligible for double the standard amount of student loan forgiveness under President Biden's student loan forgiveness plan. 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. AT&T is also still behind competitors in 5G deployment, and is up against stiff competition in the fiber broadband space. on companies with competitive advantages and strong balance sheets. AT&T shareholders are set to receive an estimated 0.24 share in the new company for each AT&T share held. Of that, $15 billion will be generated by direct-to-consumer services. The transformation weve undergone over the past 18 months while delivering outstanding operational results has brought us to this point. Still, the company the result of a merger last year between AT&Ts WarnerMedia and Discovery will have to get through a weaker advertising backdrop that weighed on fourth-quarter results, as well as a subscriber count that came in below expectations. ET. Offers may be subject to change without notice. Discovery posted fourth-quarter 2022 earnings on Feb. 23, with revenue of $11.01 billion decreasing To make the world smarter, happier, and richer. Members of High Dividend Opportunities get exclusive ideas and guidance to navigate any climate. That sale is being blamed for the slow pace of renewals for some of The CW's shows, including the Warner Bros.-ownedDC's Legends of TomorrowandBatwoman, and CBS'sCharmedandDynasty. HBO Max and Discovery Plus will be merged into a single digital platform under Warner Bros. Many investors got shares of the newly created company without doing anything. I am a retail investor, with no formal training in investing. Should we prevent her from inheriting it? Over the last four years, Apple has budgeted $315 billion to stock buybacks. According to the company's latest 8K filing, it estimates 2,406,906,476 actual shares of WBD common stock to be issued upon completion of the transaction, derived as follows: WBD Shares Attributable to AT&T Shareholders (Author), WBD Shares Attributable to Discovery Shareholders (Author). Discovery stock is a bargain buy Warner Bros. Warner Bros. One of the analysts rates WBD as a sell. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). Discovery merger, AT&T and Discovery Communications shareholders have decisions to make. David has covered a wide variety of financial and lifestyle topics for numerous publications and has experience copywriting for the retail industry. 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.) Sign up for THR news straight to your inbox every day. WarnerMedias domestic linear TV revenue is projected to decline by 2% annually through 2025. Discovery ("WBD"). Let the power of quality research drive your investment convictions. Instead of splitting, AT&T's WarnerMedia will be spinning-off and becoming Warner Bros. WBD was trading at $24.88 before markets closed for the holiday weekend. It may be counterintuitive for me to be bullish on Discovery but not as much on AT&T, but remember, AT&T is a $225 billion market cap behemoth that's splitting up, while Discovery is a mere $17 billion company merging into something bigger. Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by Discovery. Is this happening to you frequently? Shares of Warner Bros. I have no business relationship with any company whose stock is mentioned in this article. we also think that one of the big opportunities here is going to be churn reduction. What the Smartest Investors Know About Warner Bros. While Discovery is adding 100% of its business into the new combined company, its shareholders will receive 29% of the new entity's shares, according to the merger presentation. We have also identified and consolidated all that you need to know about how the transaction will take place based on the 8K filing so you don't have to spend your time-off going through 652-pages of legal and accounting jargons and instead skip right to the "need-to-knows" - key items to take note of include details on the transaction step plan, pre- and post-close share structure, transaction consideration to AT&T, as well as industry estimates to the transaction value post-close. Discovery's Stock, 2 Growth Stocks That Can Turn $250,000 Into $1 Million by 2030, Billionaire Investor Bill Ackman Is Raking In $97 Million In Annual Dividend Income From These 2 Stocks, 1 Bargain-Basement Warren Buffett Stock Down 78% to Buy Before It Starts Soaring, 3 No-Brainer Stocks to Buy With $50 Right Now, Join Over Half a Million Premium Members And Get More In-Depth Stock Guidance and Research, Motley Fool Issues Rare All In Buy Alert, Copyright, Trademark and Patent Information. In their prepared remarks, the companies said, The 'pure play' content company will own one of the deepest libraries in the world with nearly 200,000 hours of iconic programming and will bring together over 100 of the most cherished, popular and trusted brands in the world under one global portfolio.. Discovery CEO David Zaslav will run the merged giant, with Discovery CFO Gunnar Wiedenfels serving as the new companys CFO. $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. Management projects the combined company will generate $52 billion in revenue. The merger deal will see AT&T spin off WarnerMedia, to be merged with Discovery. The Spinco Financing Agreements allude to debt totaling approximately $42 billion received from a combination of bridge loans, term loan credit agreements, note issuances, and revolving credit agreements obtained or completed through commitments with JPMorgan Chase Bank, Goldman Sachs Bank, Goldman Sachs Lending Partners LLC, and "certain other financial institutions". : Holiday Haunt have been shelved. To put that in perspective, Disney+ has over 103 million subscribers, while Netflix has around 208 million subscribers. One is a relatively high rate of churn. There is meaningful churn on HBO Max, much higher than the churn that we have seen. Lawrence Nga has no position in any of the stocks mentioned. Discovery+ added 2 million subs and HBO Max gained 3 million subscribers during the last quarter at the same time that Netflix had a net loss of 200,000 subscribers. The spinoff and dividend cut is probably the right long-term move for AT&T, as it will offload some $43 billion in debt to the new WarnerMedia company. Discovery, with Discovery shareholders holding the rest. He called out this months blowout debut of the game Hogwarts Legacy, and announced a new deal for multiple Lord of the Rings movies further out. When you are thinking about how to As Stock Market Cools, Experts Advise How To Brace for the Worst. Financial Insight in Your Inbox: Sign Up for GBR's Daily Newsletter, Maximize your savings with these 3 expert tips. The Motley Fool has a disclosure policy. Copyright 2023 Market Realist. I have no business relationship with any company whose stock is mentioned in this article. That's good news for a company that's heavily leveraged, after Discovery went deep into debt to afford to $43 billion price tag for Warners. 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". We are the largest income investor and retiree community on Seeking Alpha with over 4600 members actively working together to make amazing retirements happen. 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. Some investors may have treated the spinoff as a special dividend and sold off the shares to get some cash. On Friday, Discovery shareholders formally approved the mega-combination of the factual and lifestyle media powerhouse Discovery with AT&Ts entertainment arm. NFLX has a projected net debt-to-adjusted EBITDA ratio of 1.3 for 2022. Several studies indicate consumers rate the companys streaming service as at or near the top in several categories. 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. Despite the recent subscriber losses reported by Netflix, there is reason to believe that streaming services will continue to grow. Apr 11, 2022 1:58 PM EDT. As discussed in earlier sections, management expects the transaction to close in April. Boutique investment research shop providing professional coverage on disruptive thematic equities. has been completed,direct to consumer (DTC)losses peaked in22 with a path to breakeven in24 and the cyclical headwinds should abate as macro conditions improve.. Sign up for our daily newsletter for the latest financial news and trending topics. David Nadelle is a freelance editor and writer based in Ottawa, Canada. 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! 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. I have no business relationship with any company whose stock is mentioned in this article. Looking for a helping hand in the market? Discovery, Wall Street is turning its attention to the outlook for the new conglomerates stock that began trading on Monday under the ticker symbol WBD.. We currently are holding a limited-time sale with 10% off your first year! Could AT&T Stock Beat the Market in 2023? Discovery. Discovery Makes a Dramatic Strategic Shift, Up 57% and Climbing, This Stock Is Still a Bargain Buy in 2023. However, both stocks will be attempting to catch up to well-heeled competition: AT&T in connectivity, and Discovery-plus-WarnerMedia in the streaming wars. This array of content serves to attract and retain subscribers. 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. Youre reading a free article with opinions that may differ from The Motley Fools Premium Investing Services. 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 this point, the majority of heavy lifting (related to restructuring charges etc.) Bret Kenwell. Discovery CEO David Zaslav Discovery stock. The new company will be able to compete in the streaming industry. Here are the key levels for 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. Copyright 2023 MarketWatch, Inc. All rights reserved. Revenue came in at $11 billion, compared with $3.19 billion in the prior-year quarter. As of Aug. 5, MarketBeat lists Warner Bros. May 17, 2021 2:01 PM EDT. Under the terms of the deal, which is structured as an all-stock transaction, AT&T would receive $43 billion in cash and debt with its shareholders controlling 71% of A merger rarely goes without hiccups, so while the dip in Warner Bros. Only about a quarter of the analysts rated the stock as a buy. In February, the merger received approval from the U.S. Department of Justice, the key regulatory hurdle for the merger. I own a house with my husband and mother. Disclosure: I/we have a beneficial long position in the shares of AMZN AAPL either through stock ownership, options, or other derivatives. After working in the energy industry for 18 years, he decided to change careers in 2016 and concentrate full-time on all aspects of writing. The thinking is that this could lead to a surge in subs when the two services are combined. 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. Upon closing, Magallane, Inc. Spinco will merge with "Drake Subsidiary, Inc.", the wholly owned "merger subsidiary" of Discovery's to create WBD. If you have taken a look at AT&T's latest 8K filling dated March 28th, you would notice that the filing registrant is "Magallanes, Inc.". At least both companies won't be distracted with an adjacent industry anymore. Discovery stock after the merger has been unpleasant, management can still make adjustments to deliver value to shareholders over the long run. Author's Note: Thank you for reading my analysis. Discovery, Inc. Warner Bros. I am not receiving compensation for it (other than from Seeking Alpha). Discovery to report a loss of 35 cents a share, on revenue of $11.2 billion. Since the merger was structured so that AT&T would spin off its holding of WarnerMedia and then merge the company with Discovery, AT&T investors got shares of the new company without doing anything. Ahead of the Warner Bros. On a GAAP basis, analysts polled by FactSet expected Warner Bros. Details on how the Biden administration will evaluate requests for the semiconductor incentives were released by the Commerce Department. This segues into a comparison of WBDs financial firepower with that of its rivals. Market Cools, Experts Advise how to Brace for the merger with Discovery WarnerMedia retained $ 43 billion transaction has. Are many ways to grow David has covered a wide variety of financial and media..., while Netflix has around 208 million subscribers no formal training in investing billion... Earnings report for Discovery as a special Dividend and sold off the shares of deal... From the U.S. Department of Justice, the merger received approval from the Department... 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