Considering the latest disclosure of WBD transaction details (e.g. The companies are also forecasting annual cost synergies of $3 billion. 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. 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. I/we have a beneficial long position in the shares of DISCK either through stock ownership, options, or other derivatives. Make this your go-to guide to understanding stock charts. 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. All Rights Reserved. Discovery stock. That will simplify things a whole lot, both for the companies and their investors. My primary focus is on dividend bearing stocks. As of 12/08/2022 I am rated among the top 3% of authors in terms of overall results. 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. Bolstered by strong international results, WBD increased total revenue by 13% to $3.16 billion. David Nadelle is a freelance editor and writer based in Ottawa, Canada. Earlier this year, the merger of AT&T 's ( T -0.57%) WarnerMedia with Discovery ( DISC.A) ( DISC.B) ( DISCK) was given the green light by U.S. regulators. 2023 The Hollywood Reporter, LLC. WBDs forward P/E and 5-year PEG ratio, if accurate, indicate the stock is trading at a bargain. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. 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. Erik Khalitov/iStock Unreleased via Getty Images. Discovery to report a loss of 35 cents a share, on revenue of $11.2 billion. Wiedenfels told the Deutsche Bank conference earlier in the day that the merger would create a blowout streaming product. Boutique investment research shop providing professional coverage on disruptive thematic equities. The new management is trying hard to turn around the ship. A merger rarely goes without hiccups, so while the dip in Warner Bros. 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. Please disable your ad-blocker and refresh. ) 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. All relevant risks are not covered in this article. 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. 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.. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). The company finished the quarter with 96.1 million subscribers. As part of the agreement, AT&T will get $43 billion in a mix of debt securities, cash, and WarnerMedias retention of certain debt. The firm maintained its market perform rating on Warner Bros. I'll be launching in the near future with a legacy discount for early subscribers and I'll be sharing more details as we ramp up to launch in the coming months. The potential synergies and economies of scale looked to position the combined company well to compete in the media and entertainment industry. Readers should consider their own unique investment profile and consider seeking advice from an investment professional before making an investment decision. Shares of Warner Bros. Some investors may have treated the spinoff as a special dividend and sold off the shares to get some cash. To make the world smarter, happier, and richer. If you bought shares of the S&P 500 ETF SPY as 2022 dawned, you are down around 10%. The management team has plenty of experience executing mergers. Discovery shareholders would own 29 percent of the new entity, while AT&T shareholders would hold a 71 percent stake in the new company. To management's credit, it has initiated corrective measures to offset these developments. I am not receiving compensation for it (other than from Seeking Alpha). Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. James Gunn Reveals New Superman, Batman Movies and More, Warner Bros. Erik Khalitov/iStock Unreleased via Getty Images. Bret Kenwell. As discussed in detail in our last coverage, AT&T will spinoff 100% of its current interest in WarnerMedia post-close. Following the merger early last month, WBD ranks as the number-three player in the U.S. video streaming business behind Netflix and Disney. On 7.14 billion current shares, that's about $1.18 per share, just a little more than half the $2.18 payout today. Members of High Dividend Opportunities get exclusive ideas and guidance to navigate any climate. Copyright 2023 Market Realist. Discovery has faced more cautious advertisers, ongoing cord-cutting, competition within streaming and upheaval created from the merger deal itself. 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. 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. Price as of February 28, 2023, 4:00 p.m. The conversion will ultimately result in 71% AT&T shareholder ownership in WBD, with the remaining 29% ownership in WBD attributable to Discovery shareholders. Stock Market Sell-Off: Is Warner Bros. Discovery stock was up 5% in midday trading on the stock market today, near 32.50. 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 Additional disclosure: I have no formal training in investing. Lawrence Nga has no position in any of the stocks mentioned. Discovery+, added two million subscribers in the quarter, boosting its subscriber count to 24 million. Discovery (WBD) CEO David Zaslav announced plans to combine HBO Max and Discovery+ into one streaming service. 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. 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]". Due diligence should be exercised and readers should engage in additional research and analysis before making their own investment decision. 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. Disclosure: I/we have a beneficial long position in the shares of DISCK either through stock ownership, options, or other derivatives. The stock could be a long-term winner based on its the strong growth potential in the streaming industry. Discovery posted fourth-quarter 2022 earnings on Feb. 23, with revenue of $11.01 billion decreasing In the age of large, mega-sized streaming companies, it appears that bigger is better. There is no doubt that WBD will possess a formidable content portfolio. have both fallen around 25%, and Netflix (. ) Discovery stock at a time when those shares dont fully reflect the value that we see long-term for the combined company.. Copyright 2023 MarketWatch, Inc. All rights reserved. Discovery strategic shift. 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. The new streaming behemoth will have a huge library of 200,000-plus hours of content, from Warner Bros. Studios, HBO and MBO Max, The Turner channels (TNT, TBS, CNN), as well as Discovery's comprehensive portfolio of unscripted content. 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. Discovery Stock Rises Following Merger Completion, Ricou Browning, Star of Creature From the Black Lagoon, Dies at 93, It's Always Sunny in Philadelphia Teases Gritty Cameo, Pokemon Cosplay Celebrates Misty's Anime Comeback, Burger King Adding Spicy Chicken Fries to Menu, Jon Hamm Reportedly Engaged to Mad Men Co-Star Anna Osceola, Josh Gad Takes Over as Jungle Cruise Skipper at Disneyland, AMC Theatres to Launch New Lines of Popcorn at Walmart. Asked about the risk of future dividend cuts, Desroches said that the dividend is not only safe, but its size gives the company financial flexibility. Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by Discovery. I have no business relationship with any company whose stock is mentioned in this article. 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. 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. 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. I seek a degree of safety in my investments by concentratingon companies with competitive advantages and strong balance sheets. At this point, the majority of heavy lifting (related to restructuring charges etc.) 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. According to the estimates compiled by CNN Business, Discovery has a median target price of $41.5, which is a premium of 16.4 percent over its May 14 closing prices. The Hollywood Reporter is a part of Penske Media Corporation. The Motley Fool recommends Discovery (C shares). Discovery Makes a Dramatic Strategic Shift, Up 57% and Climbing, This Stock Is Still a Bargain Buy in 2023. I have no business relationship with any company whose stock is mentioned in this article. Please. 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. HBO Max and Discovery Plus will be merged into a single digital platform under Warner Bros. For a time, it seemed like Warner was a big dog, buying up companies like DC Comics, Six Flags, and Lorimar. Price as of February 28, 2023, 4:00 p.m. Magallane, Inc. is actually the "Spinco" subsidiary, wholly owned by AT&T, created specifically for the spinoff of its WarnerMedia assets. WBD Transaction Structure (AT&T 8K filing, with annotations by Author. I own a house with my husband and mother. With over 40 individual picks yielding +7%, you can supercharge your retirement portfolio right away. Also, the company has started to benefit from the cost synergies, which partially mitigated the downsides. However, Discovery is an expert in international content, with a presence across 220 markets, and expertise adapting its unscripted content to many other languages. Here is a stat that might surprise many readers: every stock listed above has underperformed the S&P 500 over the last three years by a wide margin. 16 Million Approved for Biden Student Loan Forgiveness Plan Will Supreme Court Uphold? The same group is repeating its act again, albeit on a bigger deal. 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 blended average of the combined WBD valuation range with and without synergies is about $102.2 billion to $153.8 billion. Here are the key levels for Details on how the Biden administration will evaluate requests for the semiconductor incentives were released by the Commerce Department. 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. To balance that debt, at the end of 2021, WBD had a bit over $4.1 billion in cash. They added that advertising trends in January appeared to have improved from December. Chief Financial Officer Gunnar Wiedenfels, during Warner Bros. Discoverys Looking for a helping hand in the market? In February, the merger received approval from the U.S. Department of Justice, the key regulatory hurdle for the merger. At the end of 2021, the pro forma debt for WBD was over $56 billion. A merger rarely goes without hiccups, so while the dip in Warner Bros. 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. Furthermore, unlike Netflix, management recently reported fairly robust subscription growth for Discovery and Warner Brothers. 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. $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. The estimated transaction value takes into consideration the closing price of $25.37 per share for Discovery Series A common stock as of March 9th, multiplied by 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". The cost synergies of $ 11.2 billion thematic equities house with my husband and.! As discussed in detail in our last coverage, at & T 's WarnerMedia subsidiary by.. Justice, the merger received approval from the merger deal itself Shift up! Wbd will possess a formidable content portfolio again, albeit on a bigger deal the.... T 8K filing, with annotations by Author the dip in Warner Bros a bit over $ billion. 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