The potential synergies and economies of scale looked to position the combined company well to compete in the media and entertainment industry. 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. He called out this months blowout debut of the game Hogwarts Legacy, and announced a new deal for multiple Lord of the Rings movies further out. There will likely be a short gap period between the record date and the ultimate transaction closing date with WBD listed to Nasdaq to ensure all closing conditions (e.g. With a loss of 6% in 2022, Paramount Global (PARA) stands out as the winner, so to speak, among this bunch. I also have concerns regarding the toll cord cutting may take on the companys future results. Readers should consider their own unique investment profile and consider seeking advice from an investment professional before making an investment decision. 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. 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. 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. The new entity will focus on streaming services. Financial Insight in Your Inbox: Sign Up for GBR's Daily Newsletter, Maximize your savings with these 3 expert tips. Discovery reported a fourth-quarter net loss of $2.08 billion, or 86 cents a share, after a profit of $38 million, or 8 cents a share, in the same quarter in 2021. All Rights Reserved. Q1 operating profit and cash flow for WarnerMedia were clearly below my expectations. I own a house with my husband and mother. Looking for a helping hand in the market? Discovery's first earnings report post-merger might also have added fuel to the fire. S&P rates WBDs debt as BBB-/positive, the lowest level of investment grade. 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. To balance that debt, at the end of 2021, WBD had a bit over $4.1 billion in cash. 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. ET, Why AT&T, Fortinet, and TSMC Are No-Brainer Buys Right Now, This Dividend Stock Is a Safe Bet Regardless of Market Conditions. We will be a simpler, more focused company with the intent to become Americas best broadband provider.. Additional disclosure: I have no formal training in investing. Echoing our thoughts from the previous coverage, we believe the fast-approaching WBD spinoff will be a promising play for participating AT&T investors. Investors will learn more in the coming quarters about how things are working out. Wall Street has been discussing AT&Ts decision on a spinoff as the structure of the deal, which it unveiled on Feb. 1. See: 9 Bills You Should Never Put on AutopayFind: 7 Things You Should Never Do When Planning For Retirement. It has been awful time for investors in media company Warner Bros. The Motley Fool recommends Discovery (C shares). I am a also value / buy and hold investor. Billy Duberstein owns shares of AT&T, Discovery (C shares), and Netflix. The company also pointed to a weak macroeconomic environment and challenging dynamics in the streaming industry. 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. Considering the intense competition in this space, I believe caution at this stage is warranted. We had previously estimated about 2.4 billion WBD shares outstanding post-close according to AT&T's stock dividend structure of 0.24 WBD shares for each AT&T share. Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by Discovery. Warner Bros. Discoverys revenue fell short of expectations in Q4 as the company lost more than $2 billion on linear, streaming, & studio. 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. ET. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. By clicking the 'Subscribe Now' button, you agree to our Terms of Use and Privacy Policy. ), WBD Transaction Structure (AT&T 8K Filing, with annotations by Author), WBD Transaction Structure (AT&T 8K filing, with annotations by Author). Discovery. Ahead of the fourth-quarter earnings, some analysts said the results would present an opportunity for management to reframe the companys path forward. Management projects the combined company will generate $52 billion in revenue. Advertiser Disclosure: Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. The forward P/E for the company is 8.68x, and the 5-year PEG is 0.43x. I could be characterized as a safety first investor. In the last quarter before the merger, AT&T reported 2.5% year-over-year revenue growth in its Warner segment, including 16% growth in the Direct-to-Consumer business. However, we have taken additional consideration of the valuation sensitivity analysis performed by the WBD transaction advisors, Allen & Company and J.P. Morgan, as disclosed in AT&T's most recent 8K filing dated March 28th to further gauge the upside potential in WBD post-close. The thinking is that this could lead to a surge in subs when the two services are combined. This might explain the initial fall in Warner Bros. The management team has plenty of experience executing mergers. (I update this score on at least a quarterly basis for readers.). My sister has always struggled with money and drugs. Now, after the merger is complete, we should look at the financials of the merged entity. 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. 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. Following the merger early last month, WBD ranks as the number-three player in the U.S. video streaming business behind Netflix and Disney. 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. Erik Khalitov/iStock Unreleased via Getty Images. 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. 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. Discovery CEO David Zaslav Author's Note: Thank you for reading my analysis. 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. Bill Peters is a Los Angeles-based MarketWatch reporter who covers earnings. Discovery. On 7.14 billion current shares, that's about $1.18 per share, just a little more than half the $2.18 payout today. 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. 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. There is no doubt that WBD will possess a formidable content portfolio. 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. 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's share price when the new company began trading earlier this year. If you bought shares of the S&P 500 ETF SPY as 2022 dawned, you are down around 10%. Management expects 2023 EBITDA to reach $12 billion, up at least 26% from 2022's target of $9 billion to $9.5 billion. Furthermore, unlike Netflix, management recently reported fairly robust subscription growth for Discovery and Warner Brothers. Lawrence Nga has no position in any of the stocks mentioned. 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. 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". 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. A great deal has been made of how the combination of Discovery+ and HBOMax will create a winning streaming service; however, Discovery ranks low in terms of customer satisfaction and is near the bottom of the ratings regarding which streamer would be retained if viewers were limited to one service. Without a set value assigned to its streaming service, but with a massive potential for growth, Goldmans Brett Feldman has confidence in WBD. Discoverys stock was down 2.9 percent at $27.10 at that time. 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. Ahead of the Warner Bros. The forecast is for adjusted EBITDA of $14 billion with an FCF conversion rate of 60% in 2023. The company reported nearly $450 million in next generation revenue, a 55% increase over the prior-year quarter. 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 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. All articles are my personal perspective on a given prospective investment and should not be considered as investment advice. Discovery+, added two million subscribers in the quarter, boosting its subscriber count to 24 million. It's worth noting that these forecasts were before Discoverys merger announcement. Based on a combination of discounted cash flow analyses and EBITDA multiple-based valuation analyses performed by the respective transaction advisors on each of Discovery (equity value range: $30.6 billion to $43.1 billion) and WarnerMedia (equity value range: $55.9 billion to $94.3 billion without synergies; $87.3 billion to $127.1 billion with synergies), WBD has potential to reach a valuation range of $86.5 billion to $137.4 billon without synergies, and $117.9 billion to $170.2 billion with synergies post-close. Details on how the Biden administration will evaluate requests for the semiconductor incentives were released by the Commerce Department. 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. AT&T) wishing to divest a subsidiary (i.e. 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. Discovery stock was up 5% in midday trading on the stock market today, near 32.50. The transformation weve undergone over the past 18 months while delivering outstanding operational results has brought us to this point. Should we prevent her from inheriting it? In early Monday trading, the shares of the AT&T stockholders will end up owning 71 percent of the new Warner Bros. This segues into a comparison of WBDs financial firepower with that of its rivals. As discussed in detail in our last coverage, AT&T will spinoff 100% of its current interest in WarnerMedia post-close. With over 40 individual picks yielding +7%, you can supercharge your retirement portfolio right away. 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. 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. AT&T announced last week that April 5th at market close will be the record date for AT&T shareholders eligible for the special stock dividend pertaining to the upcoming WBD transaction. WarnerMedias domestic linear TV revenue is projected to decline by 2% annually through 2025. First earnings report post-merger might also have concerns regarding the toll cord cutting may take on the path... 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