Discovery. I seek a degree of safety in my investments by. It has been awful time for investors in media company Warner Bros. Discovery ("WBD"). All Rights Reserved. Author's Note: Thank you for reading my analysis. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. 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. 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. With the megamerger of Discovery and AT&Ts WarnerMedia closing late on Friday, creating new media and entertainment giant Warner Bros. 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. 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. By Russ Burlingame I wrote this article myself, and it expresses my own opinions. Invest better with The Motley Fool. S&P rates WBDs debt as BBB-/positive, the lowest level of investment grade. 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. The merger with Discovery has the above-stated benefits for AT&T, including significantly reduced debt. 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. Get advice on achieving your financial goals and stay up to date on the day's top financial stories. Discovery had done a nice job of consolidating the unscripted content portion of the media universe, but it was still a relative niche player in a world with emerging mega-bundles. If you Jakub Porzycki / NurPhoto / Shutterstock.com. 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. Lawrence Nga has no position in any of the stocks mentioned. 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 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. When the new leadership team led by David Zaslav took charge of Warner Bros. Now consider that the portfolio of Discovery+ will be added to that of HBOMax, and you have the makings of a content king. 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. David has covered a wide variety of financial and lifestyle topics for numerous publications and has experience copywriting for the retail industry. to create Warner Bros. Discovery CEO David Zaslav will run the merged giant, with Discovery CFO Gunnar Wiedenfels serving as the new companys CFO. 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 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. 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. And it will be available in 220 countries and 50 languages. The company posted a 5% growth in U.S. advertising and an 11% increase in distribution revenue due to Discovery+. Discovery. Q1 operating profit and cash flow for WarnerMedia were clearly below my expectations. At the time 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. The potential synergies and economies of scale looked to position the combined company well to compete in the media and entertainment industry. I own a house with my husband and mother. DISCA stock looks like a good buy at the current prices. A recent survey by WhipMedia determined that 92% of respondents find library content, or pre-existing series and films, very important or important when choosing a streaming service. 16 Million Approved for Biden Student Loan Forgiveness Plan Will Supreme Court Uphold? on companies with competitive advantages and strong balance sheets. Bill Peters is a Los Angeles-based MarketWatch reporter who covers earnings. 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 posted fourth-quarter 2022 earnings on Feb. 23, with revenue of $11.01 billion decreasing Please. Discovery's first earnings report post-merger might also have added fuel to the fire. Latest Technology & Communications News and Updates. Consequently, there could be significant overseas subscribers added. What Is the Standard Deduction for People Over 65 in 2023? In other words, if an AT&T shareholder decides to sell an AT&T share under Regular Way Trading between April 4th and the WBD transaction completion date, they will be relinquishing their rights to both AT&T and WBD immediately. I am a retail investor, with no formal training in investing. 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. -0.30% 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. Discovery stock at a time when those shares dont fully reflect the value that we see long-term for the combined company.. Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. The company reported nearly $450 million in next generation revenue, a 55% increase over the prior-year quarter. 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. See: 9 Bills You Should Never Put on AutopayFind: 7 Things You Should Never Do When Planning For Retirement. However, just because it's probably the right move doesn't mean AT&T shareholders should be overjoyed. Market Realist is a registered trademark. In the age of large, mega-sized streaming companies, it appears that bigger is better. These issued Spinco common stocks can be exchanged for 0.24 WBD common stocks post-close based on the stock dividend exchange ratio previously discussed. Desroches mentioned that Discovery currently has 700 million shares outstanding, while 1.7 billion new shares will come to market as part of the transaction. So why did a spinoff of WarnerMedia make sense as a key step in the combination? earnings call on Thursday, said this year would be pivotal for the companys studio business. The new entity will focus on streaming services. As of Aug. 5, MarketBeat lists Warner Bros. For a time, it seemed like Warner was a big dog, buying up companies like DC Comics, Six Flags, and Lorimar. 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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. 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. In early Monday trading, the shares of the As discussed in earlier sections, management expects the transaction to close in April. Now, the record date is not the same as the transaction completion date. Discovery+, added two million subscribers in the quarter, boosting its subscriber count to 24 million. Discovery. 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 are met. Discovery had reported 20 million subs as of Sept. 30 of 2021. 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. Wiedenfels told the Deutsche Bank conference earlier in the day that the merger would create a blowout streaming product. The stock could be a long-term winner based on its the strong growth potential in the streaming industry. Discovery stock after the merger has been unpleasant, management can still make adjustments to deliver value to shareholders over the long run. My sister has always struggled with money and drugs. 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