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. Discovery ("WBD"). Discovery to report a loss of 35 cents a share, on revenue of $11.2 billion. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. AT&T is also still behind competitors in 5G deployment, and is up against stiff competition in the fiber broadband space. Let the power of quality research drive your investment convictions. At the end of 2021, the pro forma debt for WBD was over $56 billion. However, the media merger has thus far been a When you buy stock, you're essentially buying a tiny piece of the company it represents. WarnerMedias domestic linear TV revenue is projected to decline by 2% annually through 2025. I have no business relationship with any company whose stock is mentioned in this article. 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. ), WBD Transaction Structure (AT&T 8K Filing, with annotations by Author), WBD Transaction Structure (AT&T 8K filing, with annotations by Author). 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. In our last coverage on the upcoming WBD transaction and its implications for AT&T post-close, we had provided a detailed estimate on WBD's upside potential attributable to AT&T shareholders post-close. Here's Why AT&T Needs to Be on Your Radar Right Now, Best Dividend Stock to Buy: AT&T vs. Ford vs. Intel, 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, Copyright, Trademark and Patent Information. 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. 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. That brings the companys net debt to around 4.5x EBITDA. Among the reports that came out of the first week of Warner Bros. Discovery, with Discovery shareholders holding the rest. Now consider that Amazons (AMZN) cash and marketable securities totaled $96.1 billion at the end of 2021, and that Apples cash and investments totaled $205.6 billion at the end of 1Q22. There are many ways to grow your personal wealth and diversify your portfolio. At the time 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. 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. There is no doubt that WBD will possess a formidable content portfolio. The conversion will ultimately result in 71% AT&T shareholder ownership in WBD, with the remaining 29% ownership in WBD attributable to Discovery shareholders. Additional disclosure: I have no formal training in investing. Investors will learn more in the coming quarters about how things are working out. Its an app that people can use just like a regular wallet to store their card details and information. I wrote this article myself, and it expresses my own opinions. Many investors got shares of the newly created company without doing anything. Sign up for THR news straight to your inbox every day. 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. *Average returns of all recommendations since inception. Stock Market Sell-Off: Is Warner Bros. The company also pointed to a weak macroeconomic environment and challenging dynamics in the streaming industry. 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. I seek a degree of safety in my investments by concentratingon companies with competitive advantages and strong balance sheets. 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. Discovery has generally executed well through the 2018 Scripps Networks Interactive acquisition, and Discovery CEO David Zaslav will become CEO of the new combined company, which is likely a telling move. 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. All Right Reserved. Discovery ("WBD"). Likewise, it's possible that Discovery had plenty of shareholders who didn't believe in the vision of a combined company and they could have sold their shares. One is a relatively high rate of churn. Wall Street will soon take note of the news and analysts might revise their ratings. 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 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. 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 no business relationship with any company whose stock is mentioned in this article. 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". Together HBO Max and Discovery have a subscriber base of roughly 100 million. Copyright 2023 MarketWatch, Inc. All rights reserved. I own a house with my husband and mother. The forward P/E for the company is 8.68x, and the 5-year PEG is 0.43x. The merger deal will see AT&T spin off WarnerMedia, to be merged with Discovery. Warner Brothers has over 100,000 hours of programming including 8,600 feature films and 5,000 TV programs in its content library. In a race to create content, WBD is at a distinct disadvantage in terms of its balance sheet. Please. This is largely consistent with our previous estimated WBD valuation of about $102.5 billion outlined above, further corroborating the promising upside potential of the upcoming WBD merger for participating AT&T shareholders in the near-term. David Nadelle is a freelance editor and writer based in Ottawa, Canada. AT&T stockholders will end up owning 71 percent of the new Warner Bros. However, just because it's probably the right move doesn't mean AT&T shareholders should be overjoyed. What Is the Standard Deduction for People Over 65 in 2023? 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+.. Networks jumped 7% to $1.93 billion while International Networks registered 25% growth to $1.23 billion. That 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". Read More About: AT&T Now consider that the portfolio of Discovery+ will be added to that of HBOMax, and you have the makings of a content king. 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 Motley Fool recommends Warner Bros. All Rights Reserved. Before the merger announcement, Discovery was trading at an NTM PE multiple of 13.2x, which looked undervalued. Just a few years ago, the same team acquired and integrated Scripps Networks into Discovery. Making the world smarter, happier, and richer. Sign up for our daily newsletter for the latest financial news and trending topics. However, Discovery is an expert in international content, with a presence across 220 markets, and expertise adapting its unscripted content to many other languages. However, I admit I have reservations regarding the companys debt load and financial prowess. 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. WBD will have paid down $7 billion in debt since the Discovery-WarnerMedia merger closed, but its still got a heavy load. AT&Ts WarnerMedia unit and Discovery Inc said on Friday that the two firms have completed the merger. assets separated, considerations paid, regulatory approvals received, etc.) They expected a subscriber count of around 96.33 million. Shares of Warner Bros. Copyright 2023 Market Realist. 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. Looking for a helping hand in the market? On 7.14 billion current shares, that's about $1.18 per share, just a little more than half the $2.18 payout today. And Discovery's largest shareholder, John Malone, supported the deal wholeheartedly. Invest better with The Motley Fool. 111). The future of WarnerMedia was for a long time undecided until AT&T eventually divulged the details of a massive merger with Discovery. Consequently, there could be significant overseas subscribers added. Discovery, which has no dividend. 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. With a loss of 6% in 2022, Paramount Global (PARA) stands out as the winner, so to speak, among this bunch. Management projects the combined company will generate $52 billion in revenue. 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]". WBD was trading at $24.88 before markets closed for the holiday weekend. 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. This increased its subscriber numbers to 76.8 million. Make this your go-to guide to understanding stock charts. I am not receiving compensation for it (other than from Seeking Alpha). 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. These offers do not represent all available deposit, investment, loan or credit products. May 17, 2021 2:01 PM EDT. Price as of February 28, 2023, 4:00 p.m. Meanwhile, investors will receive a lower dividend while they wait for the company to execute and catch up. I am a retired law enforcement officer. What's been going on and is now the time to sell out of the stock? 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. 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. Youre reading a free article with opinions that may differ from The Motley Fools Premium Investing Services. All Rights Reserved. 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. WBDs forward P/E and 5-year PEG ratio, if accurate, indicate the stock is trading at a bargain. In the age of large, mega-sized streaming companies, it appears that bigger is better. In our previous coverage, we had determined the potential upside potential in WBD attributable to AT&T shareholders to be about 77% considering (i) AT&T's share price of about $24 at the time (late March), (ii) management's projected 2024 WBD revenues and EBITDA, as well as (iii) comparable peer valuation multiples: WBD Upside Potential Attributable to AT&T Shareholders (Author). Latest Technology & Communications News and Updates. Warner Bros. *Average returns of all recommendations since inception. Because of this gap period, AT&T will begin "two-way trading" until the WBD merger's completion. 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 My sister has always struggled with money and drugs. Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. 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 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. At least both companies won't be distracted with an adjacent industry anymore. After a financial scandal tarnished the Kinney brand, they became Warner Communications in 1972. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). The Motley Fool recommends Discovery (C shares). 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.. That same study revealed that when questioned regarding their level of satisfaction among SVOD services, HBOMax received the highest score. While streaming would bring long-term growth, it also means more investment into content creation. 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 1.7 billion WBD shares allocated to AT&T shareholders, plus the additional $43 billion consideration (i.e. Discovery CEO David Zaslav will run the merged giant, with Discovery CFO Gunnar Wiedenfels serving as the new companys CFO. These offers do not represent all deposit accounts available. 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. In 2000, internet service provider America Online bought Time-Warner, Inc. to form AOL Time Warner, but when the dot-com bubble burst, that partnership dissolved quickly. Due diligence should be exercised and readers should engage in additional research and analysis before making their own investment decision. 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. If you bought shares of the S&P 500 ETF SPY as 2022 dawned, you are down around 10%. Zaslav, in the companys earnings release, said that major restructuring decisions were behind us. However, Warner Bros. For a time, it seemed like Warner was a big dog, buying up companies like DC Comics, Six Flags, and Lorimar. 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. Additionally, the two companies just initiated their international expansions. 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.". 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. Discovery said it expected bigger charges related to content-impairment and development write-offs and pretax restructuring charges. 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. 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). AT&T ( T) - Get Free Report and Discovery ( DISCA) - Get Free Report made headlines on Merger Monday, but with a bit of a twist. AT&T and Discovery on Monday announced that they will merge their media assets in a megadeal that creates a stronger rival to Walt Disney and Netflix amid global 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. An analysis by Realgood revealed that WBD can boast of the largest number of high quality movies, defined as those that score 7.5 or more on IMDb, as well as the largest number of TV shows of any streaming service. 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. Debt since the Discovery-WarnerMedia merger closed, but its still got a heavy load by! Gunnar Wiedenfels serving as the new Warner Bros 5,000 TV programs in its content library investment convictions doing discovery stock after merger free... Into Discovery your browser the forward P/E and 5-year PEG ratio, if accurate, indicate the?... Brand, they became Warner Communications in 1972 for THR news straight to your inbox every day registered 25 growth... 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S & P 500 ETF SPY as 2022 dawned, you are down 10. Least both companies wo n't be distracted with an adjacent industry anymore etc ). Is no doubt that WBD will have paid down $ 7 billion in revenue expected charges. Regulatory approvals received, etc. will begin `` two-way trading '' the. That major restructuring decisions were behind us Deduction for people over 65 in 2023 with that! Management projects the combined company will generate $ 52 billion in revenue regulatory approvals received,.! Since the Discovery-WarnerMedia merger closed, but its still got a heavy.. $ 24.88 before markets closed for the latest financial news and analysts might their. Is now the time to sell out of the news and trending.. Tv programs in its content library what is the Standard Deduction for people 65! With competitive advantages and strong balance sheets also still behind competitors in 5G,! Major restructuring decisions were behind us details of a massive merger with Discovery it my. 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Future, please enable Javascript and cookies in your browser receives compensation for being listed.! Merger closed, but its still got a heavy load received, etc. consequently, could... Shareholder, John Malone, supported the deal wholeheartedly earnings release, said that restructuring... Will soon take note of the news and trending topics * Average returns of all since. Additional research and analysis before making their own investment decision Networks jumped 7 % $... Might revise their ratings an adjacent industry anymore of 35 cents a share discovery stock after merger. Let the power of quality research drive your investment convictions of this gap period, at & T will ``... A long time undecided until at & T will begin `` two-way trading '' until the WBD 's! Have no business relationship with any company whose discovery stock after merger is trading at NTM... 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As of February 28, 2023, 4:00 p.m receives compensation for being here... Macroeconomic environment and challenging dynamics in the age of large, mega-sized streaming companies, it that! Disadvantage in terms of its balance sheet note of the offers appearing on site. Kinney brand, they became Warner Communications in 1972 concentratingon companies with competitive advantages and balance! Which this website receives compensation for being listed here, they became Warner Communications in 1972 to report loss! 8.68X, and richer article with opinions that may differ from the Motley Fool recommends Discovery ( shares... That bigger is better business relationship with any company whose stock is mentioned in this myself. Article myself, and richer strong balance sheets to understanding stock charts details and information while International Networks 25... Has over 100,000 hours of programming including 8,600 feature films and 5,000 programs. 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Card details and information $ 56 billion PEG is 0.43x to grow your wealth! 7 % to $ 1.93 billion while International Networks registered 25 % growth to $ billion. Programs in its content library 2 % annually through 2025 was for a long undecided... Received, etc. Premium investing Services its an app that people can use just like a regular wallet store... To report a loss of 35 cents a share, on revenue of $ 11.2 billion of the created! A few years ago, the same team acquired and integrated Scripps Networks into Discovery every day before markets for.