WBD will have paid down $7 billion in debt since the Discovery-WarnerMedia merger closed, but its still got a heavy load. At the time Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by Discovery. Over the last four years, Apple has budgeted $315 billion to stock buybacks. 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. AT&T Regular Way Trading - AT&T shareholders can engage in "Regular Way Trading" during the two-way trading period if they wish to sell "both the share of AT&T common stock and the right to receive shares of WBD common stock in the transaction". WBD projects $20 billion in content spend in 2022. 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. Among the reports that came out of the first week of Warner Bros. If content is king, an argument can be made that WBD takes the crown. If you have an ad-blocker enabled you may be blocked from proceeding. At least give management a few quarters to execute their strategies. However, the media merger has thus far been a The new company will be able to compete in the streaming industry. 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. NFLX also held $6 billion in cash. Details on how the Biden administration will evaluate requests for the semiconductor incentives were released by the Commerce Department. At the time of the WarnerMedia and Discovery merger in April, Zaslav promised to find $3 billion in savings from the deal, per NBC. Discovery has faced more cautious advertisers, ongoing cord-cutting, competition within streaming and upheaval created from the merger deal itself. Copyright 2023 MarketWatch, Inc. All rights reserved. One of the analysts rates WBD as a sell. Shares of AT&T ( T) - Get Free Report are higher on Monday, at last check about 8% up, after the company completed its merger with Discovery on Friday. 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. 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). Discovery ("WBD"). *Average returns of all recommendations since inception. Discovery corporation is positioned to achieve material scale as a global streamer while also fortifying its linear networks business and driving significant cost synergies, and that its merger integration risks and cyclical pressures on its linear advertising revenue are more than fully reflected in the stock at current levels, per The Fly. However, just because it's probably the right move doesn't mean AT&T shareholders should be overjoyed. HBO Max and Discovery Plus will be merged into a single digital platform under Warner Bros. AT&Ts WarnerMedia unit and Discovery Inc said on Friday that the two firms have completed 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. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). I have approximately 20 years experience as a retail investor. We will not overspend to drive subscriber growth. -2.01% Discovery had reported 20 million subs as of Sept. 30 of 2021. As discussed in earlier sections, management expects the transaction to close in April. Discovery transition into a direct-to-consumer powerhouse by focusing further investment in content and the user experience, which has garnered complaints on both HBO Max and Discovery+.. Without a set value assigned to its streaming service, but with a massive potential for growth, Goldmans Brett Feldman has confidence in WBD. 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. Discovery shareholders would own 29 percent of the new entity, while AT&T shareholders would hold a 71 percent stake in the new company. Discovery in a merge that equates to a $43 billion transaction. I have no business relationship with any company whose stock is mentioned in this article. 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 competition has been heating up in the streaming industry and legacy media companies like AT&T-owned HBO and Warner Bros, Discovery, Disney, and ViacomCBS have scaled up their streaming plans. Some investors may have treated the spinoff as a special dividend and sold off the shares to get some cash. Discovery. In a filing in December, Warner Bros. Because of this gap period, AT&T will begin "two-way trading" until the WBD merger's completion. 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. 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. Leading up to WBDs second quarter earnings report, a number of equities analysts issued ratings statements and reduced price objectives for the company, including Cowen ($24, May 12), Bank of America ($23, July 14) and Moffett Nathanson ($18, July 22). After a financial scandal tarnished the Kinney brand, they became Warner Communications in 1972. The European Commission, the executive body of the European Union, had approved the deal in December. Discovery CEO David Zaslav Now that the close of the WarnerMedia deal is approaching, we are near the starting line of a new era for AT&T, said Stankey on Friday. Understanding how you are investing is just as important as what you are investing in. Echoing our thoughts from the previous coverage, we believe the fast-approaching WBD spinoff will be a promising play for participating AT&T investors. I am a retail investor, with no formal training in investing. 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. As discussed in detail in our last coverage, AT&T will spinoff 100% of its current interest in WarnerMedia post-close. Please disable your ad-blocker and refresh. The transaction will take place over seven detailed steps, and will likely close within the next two weeks, consistent with the transaction plan stipulated in the March 28th 8K filing as well as management's intention to close the deal within April. In a research note to investors, Feldman said that the merged Warner Bros. While cautious about an already crowded streaming market and international expansion issues, Morningstar analyst Neil Macker is bullish on the company, sharing an estimated share price of $40 and an enthusiastic outlook for the media conglomerates capacity for growth. 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. However, most of the analysts rate the stock as a hold or some equivalent. Is this happening to you frequently? 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. 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. Management discussed a number of concerns to be addressed now that the merger is complete. 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. Please disable your ad-blocker and refresh. ) I also have concerns regarding the toll cord cutting may take on the companys future results. Subscribe for full access to The Hollywood Reporter. 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. Discovery (DISCA) stock is trading sharply higher on May 17 after it announced a definitive agreement to combine with AT&Ts media assets. Founded by four brothers in 1923, Warner Bros. is a giant in the film industry, but has changed hands more time than most fans can count. 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. I am not receiving compensation for it (other than from Seeking Alpha). (I update this score on at least a quarterly basis for readers.). Additional disclosure: I have no formal training in investing. May 17, 2021 2:01 PM EDT. Discovery's outlook for the year. 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 Discovery, they discovered that the previous management had been overly optimistic with their projection of Warner Bros. prospects. All Rights Reserved. Revenue came in at $11 billion, compared with $3.19 billion in the prior-year quarter. In February, the merger received approval from the U.S. Department of Justice, the key regulatory hurdle for the merger. All Right Reserved. Looking ahead within the studio, 2023 will be a pivotal year, particularly behind our larger and broader release slate at both Warner Bros. Pictures and at DC, not to mention a wonderful start with Hogwarts Legacy on the games side, he said. 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 Now consider that the portfolio of Discovery+ will be added to that of HBOMax, and you have the makings of a content king. The transformation weve undergone over the past 18 months while delivering outstanding operational results has brought us to this point. Unsurprisingly, some of the remaining shareholders -- those who held onto the shares after the initial post-merger drop off -- might have been upset by these adverse developments and joined the selling rally. On a GAAP basis, analysts polled by FactSet expected Warner Bros. The Hollywood Reporter is a part of Penske Media Corporation. Should we prevent her from inheriting it? James Gunn Reveals New Superman, Batman Movies and More, Warner Bros. 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 stock is trading higher after markets gave a thumbs up to the merger between Discovery and WarnerMedia. Discovery stock traded down more than 4% in early after-hours trading Thursday after fourth-quarter revenue badly missed analyst estimates.. Fourth-quarter revenue came in at $11.1 billion ET, Why AT&T, Fortinet, and TSMC Are No-Brainer Buys Right Now, This Dividend Stock Is a Safe Bet Regardless of Market Conditions. Please. On Friday, Discovery shareholders formally approved the mega-combination of the factual and lifestyle media powerhouse Discovery with AT&Ts entertainment arm. Warner Brothers has over 100,000 hours of programming including 8,600 feature films and 5,000 TV programs in its content library. AT&T shares fell in pre-market trading and were down 4.3 percent to $24.40 as of 7:45 a.m. These offers do not represent all deposit accounts available. The potential synergies and economies of scale looked to position the combined company well to compete in the media and entertainment industry. Bret Kenwell. Youre reading a free article with opinions that may differ from The Motley Fools Premium Investing Services. Investors might want to take a more patient approach in dealing with the company. 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. Is this happening to you frequently? But if I take a step back here and just look at, call it, the past 15 months for WarnerMedia sort of as a carve out-group, we're looking at more than $40 billion of revenue and really virtually no free cash flow. Under the stated terms, AT&T will receive $43 billion from the merger in a combination of cash and equivalents, and the retention of debt. The executive also told the Deutsche Bank Media, Internet & Telecom Conference in Palm Beach, Florida, that AT&Ts stock should be appealing to investors after the WarnerMedia deal as the company is paying dividends, targeting earnings growth and is attractively priced. 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.. Sign up for THR news straight to your inbox every day. 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). 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. So why did a spinoff of WarnerMedia make sense as a key step in the combination? I am a also value / buy and hold investor. Discovery's share price when the new company began trading earlier this year. Discovery. As part of the agreement, AT&T will get $43 billion in a mix of debt securities, cash, and WarnerMedias retention of certain debt. Ahead of the Warner Bros. Zaslav hasnt been shy in making changes that align with the Warner Bros. 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). The Motley Fool recommends Discovery (C shares). It wasn't a surprise to see Discovery shares generally acting better than AT&T's on the deal as the near- and medium-term outlook appears brighter for Discovery's shareholders than AT&T's. There are many ways to grow your personal wealth and diversify your portfolio. Just a few years ago, the same team acquired and integrated Scripps Networks into Discovery. Groundbreaking Chicago Mayor Lori Lightfoot loses reelection bid, Amid layoffs, Salesforce reportedly has been paying Matthew McConaughey more than $10 million a year, Why microchips could make or break the electric vehicle revolution, Marc Benioffs Salesforce fairy tale is crumbling down around him, Theranoss Elizabeth Holmes gives birth to second baby, pushes to delay starting her 11-year prison term, AMC stock tumbles after 14th consecutive quarterly loss, fourth straight year in the red. Upon completion of the merger, each Spinco common stock issued under transaction step #4 and distributed to existing AT&T shareholders as of record date under transaction step #5 will automatically convert into 0.24 shares of WBD common stock. They expected a subscriber count of around 96.33 million. This is according to TipRanks, which provides a 65% success rate and an average 17.6% annual return for my articles. NFLX has a projected net debt-to-adjusted EBITDA ratio of 1.3 for 2022. The new entity will focus on streaming services. Once again, International provided more robust metrics with an 11% increase in advertising revenue, adjusted for foreign exchange impacts. Get advice on achieving your financial goals and stay up to date on the day's top financial stories. Boutique investment research shop providing professional coverage on disruptive thematic equities. Management expects 2023 EBITDA to reach $12 billion, up at least 26% from 2022's target of $9 billion to $9.5 billion. As of Aug. 5, MarketBeat lists Warner Bros. The same group is repeating its act again, albeit on a bigger deal. What the Smartest Investors Know About Warner Bros. Discovery, Inc. On the valuation front for WBD post-close, we had previously projected an IPO price of about $23 based on the AT&T-to-WBD share conversion structure that AT&T had disclosed in February. Consequently, there could be significant overseas subscribers added. See which stock you should consider. 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 telecom giant also filed a 652-page Form 8K document detailing the transaction structure. Invest better with The Motley Fool. I seek a degree of safety in my investments by concentratingon companies with competitive advantages and strong balance sheets. More importantly, we believe 4Q is an opportunity for management to turn the page to 2023 and reset the narrative, BofA analysts said in a note last month. Shop Pay is an innovative payment solution developed by Shopify. Concerns to be addressed now that the merged Warner Bros the deal in December seek a degree safety. Advertisers, ongoing cord-cutting, competition within streaming and upheaval created from the merger is complete shareholders formally approved deal... Provides a 65 % success rate and an average 17.6 % annual return for my.... Upheaval created from the merger received approval from the merger is complete company to... 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