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. That same study revealed that when questioned regarding their level of satisfaction among SVOD services, HBOMax received the highest score. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Discovery. 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 future of WarnerMedia was for a long time undecided until AT&T eventually divulged the details of a massive merger with Discovery. 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. For a time, it seemed like Warner was a big dog, buying up companies like DC Comics, Six Flags, and Lorimar. Ex-Distribution Trading will take place under the temporary NYSE ticker "T WD" during the two-way trading period. Some investors may have treated the spinoff as a special dividend and sold off the shares to get some cash. I wrote this article myself, and it expresses my own opinions. Copyright 2023 MarketWatch, Inc. All rights reserved. Its an app that people can use just like a regular wallet to store their card details and information. Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by Discovery. If you Jakub Porzycki / NurPhoto / Shutterstock.com. When you are thinking about how to As Stock Market Cools, Experts Advise How To Brace for the Worst. Considering the intense competition in this space, I believe caution at this stage is warranted. The Coke vs. Pepsi debate doesn't just apply to the supermarket the brands are also rivals in the stock market. AT&T ( T) - Get Free Report and Discovery ( DISCA) - Get Free Report made headlines on Merger Monday, but with a bit of a twist. By clicking the 'Subscribe Now' button, you agree to our Terms of Use and Privacy Policy. Please note that I am in the process of planning a subscription service with Seeking Alpha's Marketplace. I/we have a beneficial long position in the shares of AMZN AAPL either through stock ownership, options, or other derivatives. We will not sort of chase aggressively behind subscriber growth. 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. Discovery strategic shift. Overall, the company revised adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to between $9 billion and $9.5 billion for 2022, down from the $10 billion forecast before 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. Bret Kenwell. 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. Discovery (NASDAQ:WBD) has slipped over 20%, Comcast (CMCSA) is down about 18%, shares of Disney (DIS) and Amazon (AMZN) have both fallen around 25%, and Netflix (NFLX) takes the proverbial cake, with a stock price that plummeted over 65%. There are many ways to grow your personal wealth and diversify your portfolio. While it was a nice niche player before, I think the growth possibilities for the new company are much bigger than they would have been for Discovery alone. Copyright 2023 Market Realist. 111). Discovery (WBD) CEO David Zaslav announced plans to combine HBO Max and Discovery+ into one streaming service. 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. 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. 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. 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. 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. The thinking is that this could lead to a surge in subs when the two services are combined. In a research note to investors, Feldman said that the merged Warner Bros. AT&T is also still behind competitors in 5G deployment, and is up against stiff competition in the fiber broadband space. Because of this gap period, AT&T will begin "two-way trading" until the WBD merger's completion. Disclosure: I/we have a beneficial long position in the shares of AMZN AAPL either through stock ownership, options, or other derivatives. Discovery has faced more cautious advertisers, ongoing cord-cutting, competition within streaming and upheaval created from the merger deal itself. Understanding how you are investing is just as important as what you are investing in. Net income for the quarter hit $456 million, with EPS of $0.69 cents. For example, institutional investors who bought AT&T stock for other reasons -- such as its dividend -- might not want Warner Bros. However, the media merger has thus far been a Were it not for the effects of foreign exchange, International would have recorded a 30% increase. 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. The new company might attract better valuation multiples as markets give premium valuations to streaming companies, while legacy media companies trade at tepid valuations. However, Warner Bros. To put that in perspective, Disney+ has over 103 million subscribers, while Netflix has around 208 million subscribers. Apr 11, 2022 1:58 PM EDT. on companies with competitive advantages and strong balance sheets. Please disable your ad-blocker and refresh. 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. It's worth noting that these forecasts were before Discoverys merger announcement. Discovery have tumbled 45.2% over the past 12 months. Readers should consider this when weighing my buy/hold/sell recommendations. 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. WBD currently trades for $18.88 a share. 16 Million Approved for Biden Student Loan Forgiveness Plan Will Supreme Court Uphold? has fallen 5.8% over that period. My sister has always struggled with money and drugs. Consequently, I rate WBD as a HOLD. 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. Discovery currently has 700 million shares outstanding, while 1.7 billion new shares will come to market as part of the transaction. 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. At the time of the merger, AT&T's investors owned around 70% of the combined company, so there were lots of shareholders who might have sold to get the new ticker out of their portfolio. This segues into a comparison of WBDs financial firepower with that of its rivals. Warner Bros. Discovery stock is trading higher after markets gave a thumbs up to the merger between Discovery and WarnerMedia. 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). Advertiser Disclosure: Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. Step 3 Special Cash Payment - 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 make a "Special Cash Payment" to AT&T totaling $33 billion, which represents the estimated fair value of AT&T's equity interest in total WarnerMedia assets and liabilities to be transferred to Spinco as discussed in transaction step #2. Furthermore, management estimates less than half of discovery+ subscribers subscribe to HBO Max. pertaining to the WarnerMedia spinoff, the telecom giant also submitted a, to the SEC, covering every "nitty-gritty" detail from pro-forma historical WarnerMedia statement of operations that were not previously available, all the way down to key terms of the merger agreement with. ) Discovery may need to fund losses for many years to build a sizable customer base. 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. Discovery's share price when the new company began trading earlier this year. -2.01% The Motley Fool recommends Discovery (C shares). 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). Now, the record date is not the same as the transaction completion date. Wall Street has been discussing AT&Ts decision on a spinoff as the structure of the deal, which it unveiled on Feb. 1. 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. 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. 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. Learn More. 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. After last years messy mega-merger, executives at Warner Bros. Upon completion of the transaction, AT&T shareholders will, together, own 71% equity interest in WBD, with Discovery shareholders owning the remainder 29%. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Upon closing, Magallane, Inc. Spinco will merge with "Drake Subsidiary, Inc.", the wholly owned "merger subsidiary" of Discovery's to create WBD. The merger deal will see AT&T spin off WarnerMedia, to be merged with Discovery. Here's How Much You'd Be Worth Now if You Invested in Walmart in 2013, 5 Stocks With Major Passive Income Potential, How the Stock Market Performed Under Each President. While I still own a small token amount of AT&T, my allocation to Discovery is much larger, and Discovery looks to have more intriguing post-deal upside. Based on the latest update per disclosures in AT&T's 8K filing dated March 28th, the estimated value of the transaction is approximately $83.4 billion. 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. 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. Chief Financial Officer Gunnar Wiedenfels, during Warner Bros. Discoverys I am a also value / buy and hold investor. 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. net asset value under U.S. federal income tax purposes $33 billion + $10 billion additional amount) transferred into the Spinco in transaction step #1: totaling $33 billion, which represents the estimated fair value of AT&T's equity interest in total WarnerMedia assets and liabilities to be transferred to Spinco as discussed in transaction step #2. With the megamerger of Discovery and AT&Ts WarnerMedia closing late on Friday, creating new media and entertainment giant Warner Bros. Just a few years ago, the same team acquired and integrated Scripps Networks into Discovery. Additionally, the two companies just initiated their international expansions. Together, these adverse developments impacted Warner Bros. 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. Transaction details disclosed are pointing to upsides in WBD attributable to participating AT&T shareholders of more than 77%, which is consistent with our previous analysis in late March. Discovery merger, AT&T and Discovery Communications shareholders have decisions to make. Essentially, AT&T will transfer 100% of its owned WarnerMedia assets into the Magallane, Inc. Spinco prior to the completion of the transaction. Discovery was word that DC could be restructured. Warner Bros. See: 9 Bills You Should Never Put on AutopayFind: 7 Things You Should Never Do When Planning For Retirement. I wrote this article myself, and it expresses my own opinions. The new company, of which Discovery shareholders will own about 29%, should become more of a force in global streaming. Billy Duberstein owns shares of AT&T, Discovery (C shares), and Netflix. 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 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. I am a retired law enforcement officer. Discovery (NASDAQ: WBD) when the stock went public last April. 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. See which stock you should consider. The strongest case for WBD is the massive supply of content associated with WarnerMedia. Discovery stock is a bargain buy Warner Bros. Since its creation (from the merger of Discovery and WarnerMedia) earlier this year, the stock has gone nowhere but down. In a filing in December, Warner Bros. 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). 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. Under the terms of the deal, which is structured as an all-stock transaction, AT&T would receive $43 billion in cash and debt with its shareholders controlling 71% of In addition to announcing April 5th as the record date for AT&T shareholders eligible for the special stock dividend pertaining to the WarnerMedia spinoff, the telecom giant also submitted a 652-page filing to the SEC, covering every "nitty-gritty" detail from pro-forma historical WarnerMedia statement of operations that were not previously available, all the way down to key terms of the merger agreement with Discovery (Nasdaq: DISCK, DISCA, DISCB) to create Warner Bros. The potential synergies and economies of scale looked to position the combined company well to compete in the media and entertainment industry. If you have an ad-blocker enabled you may be blocked from proceeding. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. 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