Copyright 2023 ComicBook.com. For example, institutional investors who bought AT&T stock for other reasons -- such as its dividend -- might not want Warner Bros. to the transaction, we have better refined our estimates. Erik Khalitov/iStock Unreleased via Getty Images. Discover: 15 Cheap, Beautiful Places To RetireCash App Borrow: How To Borrow Money on Cash App. 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. One of the analysts rates WBD as a sell. The management team has plenty of experience executing mergers. Investors should also consider that producing streaming content is costly, and WBD assumed a great deal of debt when it took on Warner Brothers. At the time Just a few years ago, the same team acquired and integrated Scripps Networks into Discovery. Offers may be subject to change without notice. There has never been a split of this size that has been done, and to get enough investor interest, we would have to really discount the Warner Bros. After the next few quarters, investors will have a better sense of how things are playing out and whether the stock is one to hold onto. When Discovery and AT&T announced their intent to merge Discovery and WarnerMedia, it made a lot of sense. 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. to create Warner Bros. 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 the spinoff. To balance that debt, at the end of 2021, WBD had a bit over $4.1 billion in cash. Warner Bros. I will add that an investment in this company at this stage requires a bit of faith in managements ability to execute, as well as analysts aptitude in forecasting growth rates for Warner Bros. 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. 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. Discovery. Now, the record date is not the same as the transaction completion date. Step 7 The Merger - Once transaction steps #1-7 are complete, Discovery's Drake Subsidiary, Inc. merger subsidiary will merge into Magallanes, Inc. Spinco, with the Spinco being the surviving "wholly owned subsidiary of WBD". I have approximately 20 years experience as a retail investor. Discovery was word that DC could be restructured. I am a retired law enforcement officer. I could be characterized as a safety first investor. Another massive streaming giant round the corner? Discovery Inc. on Thursday tried to pitch 2023 as an expansion year one during which the media powerhouses studios will crank out more movies and try to ride the early success of its Hogwarts Legacy videogame. Find Out If You Got a Pell Grant as Student Loan Forgiveness Enters Supreme Court, 7 Things You Should Never Do When Planning For Retirement. The thinly traded shares (ticker: DISCB) that are 95% owned by media mogul and Discovery board member John Malone traded Tuesday at $68.88, down $1.02. Although I endeavor to provide accurate data, there is a possibility that I inadvertently relay inaccurate or outdated information. 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. Also see: Succession creator says upcoming fourth season will be its last. 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.. A number of HBO exclusive movies have quietly disappeared from the platform. The Hollywood Reporter is a part of Penske Media Corporation. Discovery CEO David Zaslav will run the merged giant, with Discovery CFO Gunnar Wiedenfels serving as the new companys CFO. The new management is trying hard to turn around the ship. WarnerMedias operating income declined 35% year-over-year. At the end of 2021, the pro forma debt for WBD was over $56 billion. Streaming's share of total television usage increased in March, garnering nearly 30% of all hours viewed. 16 Million Approved for Biden Student Loan Forgiveness Plan Will Supreme Court Uphold? It has been awful time for investors in media company Warner Bros. 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. 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 Moreover, the merger resulted in WBD assuming a great deal of debt. I also have concerns regarding the toll cord cutting may take on the companys future results. *Average returns of all recommendations since inception. The final green light for the megadeal came at a special shareholder meeting held online; shareholders of AT&T, led by CEO John Stankey, do not need to vote on the combination. In the last quarter before the merger, AT&T reported 2.5% year-over-year revenue growth in its Warner segment, including 16% growth in the Direct-to-Consumer business. The Motley Fool recommends Warner Bros. The merger with Discovery has the above-stated benefits for AT&T, including significantly reduced debt. DISCA stock looks like a good buy at the current prices. -2.01% I own a house with my husband and mother. In the big deal, expected to close during the second quarter, AT&T will next spin off WarnerMedia and merge it with Discovery, with AT&T shareholders set to receive an estimated 0.24 share in the new company for each AT&T share held. Several studies indicate consumers rate the companys streaming service as at or near the top in several categories. Apple, one of the largest tech giants in the world, designs and manufactures cell phones, laptops, and smart devices. Madonna Breaks Silence on Death of Brother Anthony Ciccone: You Planted Many Important Seeds, Paramount CFO: Streaming Content Spending Could Come in Below $6B Target In 2024, BBC Journalism Union Members Vote in Favor of Strike. As part of the agreement, AT&T will get However, most of the analysts rate the stock as a hold or some equivalent. Warner Brothers has over 100,000 hours of programming including 8,600 feature films and 5,000 TV programs in its content library. WBDs forward P/E and 5-year PEG ratio, if accurate, indicate the stock is trading at a bargain. If you Jakub Porzycki / NurPhoto / Shutterstock.com. Let the power of quality research drive your investment convictions. The new company, of which Discovery shareholders will own about 29%, should become more of a force in global streaming. 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. Discoverys stock was down 2.9 percent at $27.10 at that time. 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. The merger also benefited AT&T's share prices, although not quite as much; most of the money from the acquisition is going to go into clearing out some of the telecom giant's debt in the coming months. we also think that one of the big opportunities here is going to be churn reduction. Discovery, with Discovery shareholders holding the rest. I am not receiving compensation for it (other than from Seeking Alpha). Upon closing, Magallane, Inc. Spinco will merge with "Drake Subsidiary, Inc.", the wholly owned "merger subsidiary" of Discovery's to create WBD. On Friday, Discovery shareholders formally approved the mega-combination of the factual and lifestyle media powerhouse Discovery with AT&Ts entertainment arm. 2023 GOBankingRates. James Gunn Reveals New Superman, Batman Movies and More, Warner Bros. Ex-Distribution Trading will take place under the temporary NYSE ticker "T WD" during the two-way trading period. So why did a spinoff of WarnerMedia make sense as a key step in the combination? Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by Discovery. Visit a quote page and your recently viewed tickers will be displayed here. Based on 14 ratings, nine analysts had WBD stock as a moderate buy, five rated it as a hold, and only one appraiser had the company as a sell. Discovery reported a fourth-quarter net loss of $2.08 billion, or 86 cents a share, after a profit of $38 million, or 8 cents a share, in the same quarter in 2021. Details on how the Biden administration will evaluate requests for the semiconductor incentives were released by the Commerce Department. have both fallen around 25%, and Netflix (. ) They expected a subscriber count of around 96.33 million. Discovery stock. 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. Now consider that the portfolio of Discovery+ will be added to that of HBOMax, and you have the makings of a content king. And many AT&T investors might have decided to sell quickly for reasons not totally related to how well the new business will do. Discovery posted fourth-quarter 2022 earnings on Feb. 23, with revenue of $11.01 billion decreasing share conversion ratios, estimated WBD shares outstanding post-close, recent Discovery and AT&T closing share price, peer comps, etc.) 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. AT&T) wishing to divest a subsidiary (i.e. I have no business relationship with any company whose stock is mentioned in this article. There is currently no definitive answer to when the WBD merger will close or what its post-close value will be. 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.. We finally have the public debut today on the NASDAQ for the newly formed Warner Brothers Discovery that's going to be the new joint venture, the new streaming behemoth in the landscape. 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. HBO Max and Discovery Plus will be merged into a single digital platform under Warner Bros. Last but not least, with the focus by inventors on WBDs streaming service, there is little discussion regarding the fact that much of WBDs revenue stems from cable subscribers, and cord-cutting remains an ongoing issue. Lawrence Nga has no position in any of the stocks mentioned. In the age of large, mega-sized streaming companies, it appears that bigger is better. Discovery is now a buy, hold or sell. I have no business relationship with any company whose stock is mentioned in this article. Discovery has faced more cautious advertisers, ongoing cord-cutting, competition within streaming and upheaval created from the merger deal itself. The service will allow you to follow my model portfolio, interact with me directly, and participate in chat rooms with other subscribers. Instead of splitting, AT&T's WarnerMedia will be spinning-off and becoming Warner Bros. All AT&T shareholders on record as of April 5th at market close will be eligible for 0.24 WBD shares for each share of AT&T share owned. Please. Make this your go-to guide to understanding stock charts. In the process of merging AT&T at 71% and WBD was Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. Consequently, there could be significant overseas subscribers added. The company previously expected $3 billion in annual run-rate synergies from the merger, but during the last earnings call, CFO Wiedenfels stated the $3 billion target might be conservative. SPX, 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. Discovery's ( NASDAQ: WBD) announcement that Hogwarts Legacy has generated $850 million in sales two weeks after its release shows why the gaming unit could boost the stock. Our analysis provides a deep dive on growth drivers present in the secular market to identify outperforming investments. David has covered a wide variety of financial and lifestyle topics for numerous publications and has experience copywriting for the retail industry. 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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. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. Maximize your income with the worlds highest-quality dividend investments. With a loss of 6% in 2022, Paramount Global (PARA) stands out as the winner, so to speak, among this bunch. WBD projects $20 billion in content spend in 2022. Discovery in a merge that equates to a $43 billion transaction. Please disable your ad-blocker and refresh. The thinking is that this could lead to a surge in subs when the two services are combined. Hogwarts Legacy launched on Feb. 10. There was an unknown error. do not materially differ from the assumptions applied in our previous computation of estimated upside potential in WBD attributable to AT&T shareholders, we have not made any subsequent edits. Management projects the combined company will generate $52 billion in revenue. 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. AT&T shareholders are set to receive an estimated 0.24 share in the new company for each AT&T share held. Year-to-date, Warner Bros. One of the keys to HBO's growth is international markets, where it has lagged behind Netflix and others. In addition, Discovery didn't have a dividend prior to this announcement, while AT&T was a former Dividend Aristocrat that will cut its dividend in half in the wake of the deal. 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. ET. Invest better with The Motley Fool. Invest better with The Motley Fool. If you want full access to our Model Portfolio and all our current Top Picks, feel free to join us for a 2-week free trial at High Dividend Opportunities. The new company will be able to compete in the streaming industry. While most AT&T shareholders are income-focused, the WBD transaction could make an attractive one-time trade to capitalize on promising near-term upside potential resulting from a valuation re-rate event. Warner Bros. See which stock you should consider. Poorer than expected performance of late from WarnerMedia was also highlighted. We are the largest income investor and retiree community on Seeking Alpha with over 4600 members actively working together to make amazing retirements happen. 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. -2.01 % i own a house with my husband and mother 100,000 hours of programming 8,600. Make sense as a retail investor it made a lot of sense to be churn.. Is that this could lead to a $ 43 billion transaction topics for publications! Added to that of HBOMax, and smart devices lawrence Nga has position. 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