Discovery have tumbled 45.2% over the past 12 months. 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 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). are met. With over 40 individual picks yielding +7%, you can supercharge your retirement portfolio right away. Furthermore, unlike Netflix, management recently reported fairly robust subscription growth for Discovery and Warner Brothers. One of the analysts rates WBD as a sell. The management team has plenty of experience executing mergers. Warner Bros. The company posted a 5% growth in U.S. advertising and an 11% increase in distribution revenue due to Discovery+. Learn More. Please. Discovery Makes a Dramatic Strategic Shift, Up 57% and Climbing, This Stock Is Still a Bargain Buy in 2023. Discovery, will start To make the world smarter, happier, and richer. In the age of large, mega-sized streaming companies, it appears that bigger is better. AT&T stockholders will end up owning 71 percent of the new Warner Bros. However, Discovery is an expert in international content, with a presence across 220 markets, and expertise adapting its unscripted content to many other languages. 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. Please. 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. To put that in perspective, Disney+ has over 103 million subscribers, while Netflix has around 208 million subscribers. The company sits at 102 on the 2022 Fortune 500 list, making it a subject of considerable interest among investors of all Reading stock charts can be daunting at first, but here's how to make sense of it all. So why did a spinoff of WarnerMedia make sense as a key step in the combination? 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. After the next few quarters, investors will have a better sense of how things are playing out and whether the stock is one to hold onto. After last years messy mega-merger, executives at Warner Bros. The company posted FCF of $238 million, and operating expenses decreased 8% to $907 million. AT&Ts WarnerMedia unit and Discovery Inc said on Friday that the two firms have completed the merger. We will not launch any new markets for the time being. 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. 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". Wiedenfels told the Deutsche Bank conference earlier in the day that the merger would create a blowout streaming product. NFLX also held $6 billion in cash. The new company will be able to compete in the streaming industry. Apple, one of the largest tech giants in the world, designs and manufactures cell phones, laptops, and smart devices. 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. AT&T) wishing to divest a subsidiary (i.e. 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. In a research note to investors, Feldman said that the merged Warner Bros. Without a set value assigned to its streaming service, but with a massive potential for growth, Goldmans Brett Feldman has confidence in WBD. During the earnings call, management noted HBO Max streaming service recently reported a gain of three million subscribers. In February, the merger received approval from the U.S. Department of Justice, the key regulatory hurdle for the merger. Last week, AT&T confirmed April 5th at market close as the record date for the stock dividend related to the WarnerMedia spinoff. With a loss of 6% in 2022, Paramount Global (PARA) stands out as the winner, so to speak, among this bunch. -2.01% Discovery ("WBD"). Erik Khalitov/iStock Unreleased via Getty Images. If you bought shares of the S&P 500 ETF SPY as 2022 dawned, you are down around 10%. Now consider that the portfolio of Discovery+ will be added to that of HBOMax, and you have the makings of a content king. Chief Financial Officer Gunnar Wiedenfels, during Warner Bros. Discoverys As a result, the new team reduced earnings projections by about $2 billion. If you have an ad-blocker enabled you may be blocked from proceeding. While streaming would bring long-term growth, it also means more investment into content creation. Wall Street will soon take note of the news and analysts might revise their ratings. AT&T shareholders will own 71 percent of the merged firm, with Discovery shareholders owning the rest. 111). Consequently, there could be significant overseas subscribers added. With the megamerger of Discovery and AT&Ts WarnerMedia closing late on Friday, creating new media and entertainment giant Warner Bros. Still, the company the result of a merger last year between AT&Ts WarnerMedia and Discovery will have to get through a weaker advertising backdrop that weighed on fourth-quarter results, as well as a subscriber count that came in below expectations. Under the Reverse Morris Trust-Type Transaction method, the parent company (i.e. 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. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. 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. 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. Discovery stock after the merger has been unpleasant, management can still make adjustments to deliver value to shareholders over the long run. 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. 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. 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 new company might attract better valuation multiples as markets give premium valuations to streaming companies, while legacy media companies trade at tepid valuations. I am not receiving compensation for it (other than from Seeking Alpha). Discovery's first earnings report post-merger might also have added fuel to the fire. We will not overspend to drive subscriber growth. Due diligence should be exercised and readers should engage in additional research and analysis before making their own investment decision. Discovery in a merge that equates to a $43 billion transaction. Magallane, Inc. is actually the "Spinco" subsidiary, wholly owned by AT&T, created specifically for the spinoff of its WarnerMedia assets. The forward P/E for the company is 8.68x, and the 5-year PEG is 0.43x. Discovery Communications and its three share classes will no longer exist as the company, unlike AT&T, will fully be merged into Warner Bros. I'll be launching in the near future with a legacy discount for early subscribers and I'll be sharing more details as we ramp up to launch in the coming months. When you buy stock, you're essentially buying a tiny piece of the company it represents. 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. Another massive streaming giant round the corner? I seek a degree of safety in my investments by. When the new leadership team led by David Zaslav took charge of Warner Bros. Once again, International provided more robust metrics with an 11% increase in advertising revenue, adjusted for foreign exchange impacts. All Rights Reserved. Discovery may need to fund losses for many years to build a sizable customer base. Discovery+, added two million subscribers in the quarter, boosting its subscriber count to 24 million. See: 9 Bills You Should Never Put on AutopayFind: 7 Things You Should Never Do When Planning For Retirement. Essentially, AT&T will transfer 100% of its owned WarnerMedia assets into the Magallane, Inc. Spinco prior to the completion of the transaction. I am a graduate of the U.S Army Ranger school and a former member of the 1st Ranger Battalion and The Old Guard (U.S Army Honor Guard.) We will not sort of chase aggressively behind subscriber growth. 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. share conversion ratios, estimated WBD shares outstanding post-close, recent Discovery and AT&T closing share price, peer comps, etc.) The Motley Fool recommends Discovery (C shares). The same group is repeating its act again, albeit on a bigger deal. Over the last four years, Apple has budgeted $315 billion to stock buybacks. David Nadelle is a freelance editor and writer based in Ottawa, Canada. Warner Bros. Youre reading a free article with opinions that may differ from The Motley Fools Premium Investing Services. has fallen 5.8% over that period. WBD was The Hollywood Reporter is a part of Penske Media Corporation. Discovery, with Discovery shareholders holding the rest. The Motley Fool has a disclosure policy. The blended average of the combined WBD valuation range with and without synergies is about $102.2 billion to $153.8 billion. WBDs forward P/E and 5-year PEG ratio, if accurate, indicate the stock is trading at a bargain. Please note that I am in the process of planning a subscription service with Seeking Alpha's Marketplace. 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 The new management is trying hard to turn around the ship. Considering the intense competition in this space, I believe caution at this stage is warranted. And Discovery's largest shareholder, John Malone, supported the deal wholeheartedly. ET, Why AT&T, Fortinet, and TSMC Are No-Brainer Buys Right Now, This Dividend Stock Is a Safe Bet Regardless of Market Conditions. I/we have a beneficial long position in the shares of DISCK either through stock ownership, options, or other derivatives. 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). Discovery. 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. 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. 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. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. To make the world smarter, happier, and richer. However, I admit I have reservations regarding the companys debt load and financial prowess. Discovery stock at a time when those shares dont fully reflect the value that we see long-term for the combined company.. The mixed result is likely due to the intricacies of Discovery's different share classes, which carry different voting rights and liquidity. The new entity will focus on streaming services. A merger rarely goes without hiccups, so while the dip in Warner Bros. Considering the latest disclosure of WBD transaction details (e.g. AT&T stockholders will end up owning 71 percent of the new Warner Bros. 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. Learn More. Stock Market Holidays 2023: Is the Stock Market Open Today? Discovery's outlook for the year. 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". Making the world smarter, happier, and richer. S&P rates WBDs debt as BBB-/positive, the lowest level of investment grade. By clicking the 'Subscribe Now' button, you agree to our Terms of Use and Privacy Policy. 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.". Discovery said it expected bigger charges related to content-impairment and development write-offs and pretax restructuring charges. Networks jumped 7% to $1.93 billion while International Networks registered 25% growth to $1.23 billion. Bret Kenwell. AT&T shareholders are set to receive an estimated 0.24 share in the new company for each AT&T share held. Management discussed a number of concerns to be addressed now that the merger is complete. Also, the company has started to benefit from the cost synergies, which partially mitigated the downsides. 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 companies are also forecasting annual cost synergies of $3 billion. Ahead of the fourth-quarter earnings, some analysts said the results would present an opportunity for management to reframe the companys path forward. Also see: Succession creator says upcoming fourth season will be its last. 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 was word that DC could be restructured. Lawrence Nga has no position in any of the stocks mentioned. 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