This increased its subscriber numbers to 76.8 million. In February, the merger received approval from the U.S. Department of Justice, the key regulatory hurdle for the merger. Discovery, Inc. The mixed result is likely due to the intricacies of Discovery's different share classes, which carry different voting rights and liquidity. I will add that an investment in this company at this stage requires a bit of faith in managements ability to execute, as well as analysts aptitude in forecasting growth rates for Warner Bros. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. To balance that debt, at the end of 2021, WBD had a bit over $4.1 billion in cash. I wrote this article myself, and it expresses my own opinions. Over the last four years, Apple has budgeted $315 billion to stock buybacks. 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. -2.01% Warner Bros. As of Aug. 5, MarketBeat lists Warner Bros. Discovery's Stock, 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, Motley Fool Issues Rare All In Buy Alert, Copyright, Trademark and Patent Information. 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 Discovery. I seek a degree of safety in my investments by concentratingon companies with competitive advantages and strong balance sheets. Please note that I am in the process of planning a subscription service with Seeking Alpha's Marketplace. To make the world smarter, happier, and richer. Invest better with The Motley Fool. Apr 11, 2022 1:58 PM EDT. Market Realist is a registered trademark. The company previously expected $3 billion in annual run-rate synergies from the merger, but during the last earnings call, CFO Wiedenfels stated the $3 billion target might be conservative. By comparison, the S&P 500 index Copyright 2023 Market Realist. Discovery's share price when the new company began trading earlier this year. ), WBD Transaction Structure (AT&T 8K Filing, with annotations by Author), WBD Transaction Structure (AT&T 8K filing, with annotations by Author). 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. 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+.. He recently completed a technical communication diploma and holds previous university degrees in journalism, sociology and criminology. on companies with competitive advantages and strong balance sheets. Discovery. Here are the key levels for Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. 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. Now, the record date is not the same as the transaction completion date. 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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). 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. 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. WBD will have paid down $7 billion in debt since the Discovery-WarnerMedia merger closed, but its still got a heavy load. The Motley Fool recommends Discovery (C shares). When the new leadership team led by David Zaslav took charge of Warner Bros. The service will allow you to follow my model portfolio, interact with me directly, and participate in chat rooms with other subscribers. 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. 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. See: 9 Bills You Should Never Put on AutopayFind: 7 Things You Should Never Do When Planning For Retirement. Upon closing, Magallane, Inc. Spinco will merge with "Drake Subsidiary, Inc.", the wholly owned "merger subsidiary" of Discovery's to create WBD. The idea is that Warners has not been fully capitalizing on the brand's potential. Discovery had reported 20 million subs as of Sept. 30 of 2021. Ahead of the Warner Bros. After all, the spinoff is tantamount to an admission of error on the hugely expensive 2018 acquisition of Time Warner, which was the signature move of prior management. 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. Is this happening to you frequently? 16 Million Approved for Biden Student Loan Forgiveness Plan Will Supreme Court Uphold? SPX, 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. Essentially, AT&T will transfer 100% of its owned WarnerMedia assets into the Magallane, Inc. Spinco prior to the completion of the transaction. All Rights Reserved. AT&T shares fell in pre-market trading and were down 4.3 percent to $24.40 as of 7:45 a.m. 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. The Wall Street Journal this month reported that Warner Bros. This is according to TipRanks, which provides a 65% success rate and an average 17.6% annual return for my articles. Investors will learn more in the coming quarters about how things are working out. 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. Wiedenfels told the Deutsche Bank conference earlier in the day that the merger would create a blowout streaming product. Net income for the quarter hit $456 million, with EPS of $0.69 cents. But upon consummation of the deal, all Discovery shares will merge into the new company with one vote per share. Discovery. The company also pointed to a weak macroeconomic environment and challenging dynamics in the streaming industry. distribution of Spinco common stock to eligible AT&T shareholders as of record date), which occurs prior to completion of the WBD merger. Consequently, there could be significant overseas subscribers added. Price as of February 28, 2023, 4:00 p.m. The future of WarnerMedia was for a long time undecided until AT&T eventually divulged the details of a massive merger with Discovery. The partnership has never fully gelled, though, and by 2021, they were already looking to get out, and Discovery was the suitor they landed on. 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. 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. Now, after the merger is complete, we should look at the financials of the merged entity. WBD was 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. 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). 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. The European Commission, the executive body of the European Union, had approved the deal in December. Discovery merger, AT&T and Discovery Communications shareholders have decisions to make. If content is king, an argument can be made that WBD takes the crown. WBD projects $20 billion in content spend in 2022. One is a relatively high rate of churn. The blended average of the combined WBD valuation range with and without synergies is about $102.2 billion to $153.8 billion. Prior to WBDs quarterly report announcement, Barrons reported that analysts at Goldman Sachs reinstated a buy rating and price target of $22 on Warner Bros. 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 AT&T is also still behind competitors in 5G deployment, and is up against stiff competition in the fiber broadband space. Erik Khalitov/iStock Unreleased via Getty Images. The thinking is that this could lead to a surge in subs when the two services are combined. Discovery, with Discovery shareholders holding the rest. 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. In a research note to investors, Feldman said that the merged Warner Bros. Only about a quarter of the analysts rated the stock as a buy. Warner Bros. The same group is repeating its act again, albeit on a bigger deal. 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. WBD was trading at $24.88 before markets closed for the holiday weekend. we also think that one of the big opportunities here is going to be churn reduction. Please disable your ad-blocker and refresh. 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. $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. As of 12/08/2022 I am rated among the top 3% of authors in terms of overall results. After a financial scandal tarnished the Kinney brand, they became Warner Communications in 1972. Revenue came in at $11 billion, compared with $3.19 billion in the prior-year quarter. I wrote this article myself, and it expresses my own opinions. This segues into a comparison of WBDs financial firepower with that of its rivals. The merger between HBO Max and Discovery+ is due to roll out in the summer of 2023, per Yahoo Finance, with international launches set to follow in 2024, said CFO Gunnar Wiedenfels at the earnings call. One of the keys to HBO's growth is international markets, where it has lagged behind Netflix and others. 2023 GOBankingRates. 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. See which stock you should consider. These are high-margin services that AT&T needs to get right, and where it's up against stiff competition in the telecom space. The companies are also forecasting annual cost synergies of $3 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. AT&T stockholders will end up owning 71 percent of the new Warner Bros. Copyright 2023 ComicBook.com. Discovery Makes a Dramatic Strategic Shift, Up 57% and Climbing, This Stock Is Still a Bargain Buy in 2023. Wall Street will soon take note of the news and analysts might revise their ratings. has fallen 5.8% over that period. The strongest case for WBD is the massive supply of content associated with WarnerMedia. Youre reading a free article with opinions that may differ from The Motley Fools Premium Investing Services. Telecom giant AT&T chose to spin off, rather than split off, WarnerMedia in a key step of the entertainment units merger with Discovery to avoid having to really discount the merged Warner Bros. Discoverys stock, AT&T CFO Pascal Desroches told investors Monday. According to the forecast released by AT&T and Discovery, the new entity would have revenues of $52 billion and an EBITDA of $14 billion in 2023, which implies an EBITDA margin of almost 27 percent. Due diligence should be exercised and readers should engage in additional research and analysis before making their own investment decision. Stock Market Holidays 2023: Is the Stock Market Open Today? Invest better with The Motley Fool. Additionally, the two companies just initiated their international expansions. 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 Please. With over 40 individual picks yielding +7%, you can supercharge your retirement portfolio right away. Warner Bros. The transformation weve undergone over the past 18 months while delivering outstanding operational results has brought us to this point. 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. A total of 26.26 million student loan borrowers have applied or were deemed automatically eligible for relief under President Joe Biden's student loan forgiveness program, and there are 16.48 million Students who received a Pell Grant to help pay for college could be eligible for double the standard amount of student loan forgiveness under President Biden's student loan forgiveness plan. I own a house with my husband and mother. I am not receiving compensation for it (other than from Seeking Alpha). 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. 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. Discovery a Buy? Discovery has faced more cautious advertisers, ongoing cord-cutting, competition within streaming and upheaval created from the merger deal itself. Discovery ("WBD"). 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. 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. However, most of the analysts rate the stock as a hold or some equivalent. However, the media merger has thus far been a Management discussed a number of concerns to be addressed now that the merger is complete. Read More About: AT&T Should we prevent her from inheriting it? Offers may be subject to change without notice. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. I have approximately 20 years experience as a retail investor. I wrote this article myself, and it expresses my own opinions. The distributed Spinco common stocks can be exchanged for 0.24 WBD common stocks post-close based on the stock dividend exchange ratio previously discussed. However, based on the stock's performance so far, it seems other shareholders have had different opinions about the value of the deal, including those who got shares without taking any action. Author's Note: Thank you for reading my analysis. Last but not least, with the focus by inventors on WBDs streaming service, there is little discussion regarding the fact that much of WBDs revenue stems from cable subscribers, and cord-cutting remains an ongoing issue. It had been up as much as 9% in morning trading but has been in a Under the Reverse Morris Trust-Type Transaction method, the parent company (i.e. On Feb. 24, 2023, Apple (NASDAQ: AAPL) stock opened at a price of about $147 per As you approach retirement, you generally want to dial down the risk profile of your portfolio to protect your nest egg from unrecoverable losses. NFLX has a projected net debt-to-adjusted EBITDA ratio of 1.3 for 2022. Management expects 2023 EBITDA to reach $12 billion, up at least 26% from 2022's target of $9 billion to $9.5 billion. Based on 14 ratings, nine analysts had WBD stock as a moderate buy, five rated it as a hold, and only one appraiser had the company as a sell. We will not overspend to drive subscriber growth. The company posted a 5% growth in U.S. advertising and an 11% increase in distribution revenue due to Discovery+. In addition, Discovery didn't have a dividend prior to this announcement, while AT&T was a former Dividend Aristocrat that will cut its dividend in half in the wake of the deal. 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.. Its options had been the spinoff, in which AT&T stockholders will receive shares in the merged company in addition to their existing AT&T shares; a split-off, which would have allowed shareholders to choose between stock of AT&T and the new company; or some combination of the two. 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. Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by 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. Discovery have tumbled 45.2% over the past 12 months. Discovery (WBD) CEO David Zaslav announced plans to combine HBO Max and Discovery+ into one streaming service. Looking for a helping hand in the market? If you have an ad-blocker enabled you may be blocked from proceeding. I am not receiving compensation for it (other than from Seeking Alpha). I am a retired law enforcement officer. Growth is international markets, where it has lagged behind Netflix and others 24.88 markets! 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