The company the result of a merger last year between AT&Ts WarnerMedia and Discovery reported a fourth-quarter net loss of $2.08 billion, or 86 But upon consummation of the deal, all Discovery shares will merge into the new company with one vote per share. Discovery has faced more cautious advertisers, ongoing cord-cutting, competition within streaming and upheaval created from the merger deal itself. It's worth noting that these forecasts were before Discoverys merger announcement. Discovery (WBD) CEO David Zaslav announced plans to combine HBO Max and Discovery+ into one streaming service. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. Zaslav hasnt been shy in making changes that align with the Warner Bros. 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. Discovery stock was up 5% in midday trading on the stock market today, near 32.50. There is no doubt that WBD will possess a formidable content portfolio. 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). to the transaction, we have better refined our estimates. Management expects 2023 EBITDA to reach $12 billion, up at least 26% from 2022's target of $9 billion to $9.5 billion. We will not sort of chase aggressively behind subscriber growth. Learn More. 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. S&P rates WBDs debt as BBB-/positive, the lowest level of investment grade. Price as of February 28, 2023, 4:00 p.m. This might explain the initial fall in Warner Bros. are met. Here are the key levels for Wiedenfels told the Deutsche Bank conference earlier in the day that the merger would create a blowout streaming product. If you want full access to our Model Portfolio and all our current Top Picks, feel free to join us for a 2-week free trial at High Dividend Opportunities. 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. 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. Boutique investment research shop providing professional coverage on disruptive thematic equities. Could AT&T Stock Beat the Market in 2023? Discovery CEO David Zaslav The announcement has brought out financial gurus to assess whether Warner Bros. AT&T shareholders will own 71 percent of the merged firm, with Discovery shareholders owning the rest. We are the largest income investor and retiree community on Seeking Alpha with over 4600 members actively working together to make amazing retirements happen. Discovery (NASDAQ: WBD) when the stock went public last April. 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. We will be a simpler, more focused company with the intent to become Americas best broadband provider.. We currently are holding a limited-time sale with 10% off your first year! 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). 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). Erik Khalitov/iStock Unreleased via Getty Images. Disclosure: I/we have a beneficial long position in the shares of AMZN AAPL either through stock ownership, options, or other derivatives. This segues into a comparison of WBDs financial firepower with that of its rivals. Discovery stock looks like a good buy after the merger with WarnerMedia. The thinking is that this could lead to a surge in subs when the two services are combined. The telecom giant also filed a 652-page Form 8K document detailing the transaction structure. We expect that Zaslav will use his experience to help Warner Bros. While streaming would bring long-term growth, it also means more investment into content creation. Without the ability to invest billions in content to compete with the likes of Netflix, legacy cable companies were likely to get left behind, or at least become niche offerings without much growth. Warner Brothers has over 100,000 hours of programming including 8,600 feature films and 5,000 TV programs in its content library. 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 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. This array of content serves to attract and retain subscribers. 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 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. Sign up for THR news straight to your inbox every day. AT&T stockholders will end up owning 71 percent of the new Warner Bros. Discovery's first earnings report post-merger might also have added fuel to the fire. 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. 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. 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 (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%. Sign up for our daily newsletter for the latest financial news and trending topics. Discovery strategic shift. I am not receiving compensation for it (other than from Seeking Alpha). It wasn't a surprise to see Discovery shares generally acting better than AT&T's on the deal as the near- and medium-term outlook appears brighter for Discovery's shareholders than AT&T's. 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. 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. 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. Trading AT&T and Discovery After $43 Billion Media Merger AT&T and Discovery have come to terms on a $43 billion media deal. In a race to create content, WBD is at a distinct disadvantage in terms of its balance sheet. The thinly traded shares (ticker: DISCB) that are 95% owned by media mogul and Discovery board member John Malone traded Tuesday at $68.88, down $1.02. Apr 11, 2022 1:58 PM EDT. AT&T and Discovery sound optimistic about the new company's outlook. WBD Transaction Structure (AT&T 8K filing, with annotations by Author. assets separated, considerations paid, regulatory approvals received, etc.) 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. Ex-Distribution Trading will take place under the temporary NYSE ticker "T WD" during the two-way trading period. I am not receiving compensation for it (other than from Seeking Alpha). Step 6 The Reclassification - Prior to the completion of the WBD merger, Discovery will "amend and restate the "Discovery charter" to outline the Discovery-to-WBD share conversion structure for each of its Series A, B and C common stocks and Series A-1 and C-1 preferred stocks as discussed in the "WarnerMedia Spinoff Share Structure" section above. Discovery. David has covered a wide variety of financial and lifestyle topics for numerous publications and has experience copywriting for the retail industry. with the stock up over 60% year to date, reversing losses from 2022 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. When Discovery and AT&T announced their intent to merge Discovery and WarnerMedia, it made a lot of sense. The same group is repeating its act again, albeit on a bigger deal. 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. Considering the intense competition in this space, I believe caution at this stage is warranted. Making the world smarter, happier, and richer. Among the reports that came out of the first week of Warner Bros. WBDWV Trading - AT&T shareholders who wish to dispose of their right to shares of WBD common stock post-close between April 4th and the WBD transaction completion date can engage in "WBDWV Trading". WBD was trading at $24.88 before markets closed for the holiday weekend. I am not receiving compensation for it (other than from Seeking Alpha). We will not launch any new markets for the time being. 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. 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. Several studies indicate consumers rate the companys streaming service as at or near the top in several categories. Management also emphasized that the company will take a circumspect approach to content spend. I seek a degree of safety in my investments by. That brings the companys net debt to around 4.5x EBITDA. Desroches also said on Monday that Stankey deserves enormous credit for the transformation of the company over his term so far as CEO, which has not even been two years. When you buy stock, you're essentially buying a tiny piece of the company it represents. 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 Year-to-date, Warner Bros. Discovery's share price when the new company began trading earlier this year. 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. 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". By clicking the 'Subscribe Now' button, you agree to our Terms of Use and Privacy Policy. Discovery planned to keep Discovery+ as a standalone streaming platform, as the company weighs how to make more of its content available in a single place. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). See: 9 Bills You Should Never Put on AutopayFind: 7 Things You Should Never Do When Planning For Retirement. Just a few years ago, the same team acquired and integrated Scripps Networks into Discovery. 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. Moreover, the merger resulted in WBD assuming a great deal of debt. 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. Discovery Makes a Dramatic Strategic Shift, Up 57% and Climbing, This Stock Is Still a Bargain Buy in 2023. To make the world smarter, happier, and richer. Since I require a discount in the share valuations of my investments, my ratings are generally very conservative. Considering the latest disclosure of WBD transaction details (e.g. Of that, $15 billion will be generated by direct-to-consumer services. The company posted FCF of $238 million, and operating expenses decreased 8% to $907 million. The consensus 12-month price target of the five analysts rating the stock is $37.25. we will continue to be very thoughtful about our spend. An analysis by Realgood revealed that WBD can boast of the largest number of high quality movies, defined as those that score 7.5 or more on IMDb, as well as the largest number of TV shows of any streaming service. 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. Discovery, which has no dividend. Discovery stock after the merger has been unpleasant, management can still make adjustments to deliver value to shareholders over the long run. 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. The new streaming behemoth will have a huge library of 200,000-plus hours of content, from Warner Bros. Studios, HBO and MBO Max, The Turner channels (TNT, TBS, CNN), as well as Discovery's comprehensive portfolio of unscripted content. Invest better with The Motley Fool. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. The merger with Discovery has the above-stated benefits for AT&T, including significantly reduced debt. After last years messy mega-merger, executives at Warner Bros. In early Monday trading, the shares of the The streaming merger is the latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company. My primary focus is on dividend bearing stocks. 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. Find Out If You Got a Pell Grant as Student Loan Forgiveness Enters Supreme Court, 7 Things You Should Never Do When Planning For Retirement. Meanwhile, investors will receive a lower dividend while they wait for the company to execute and catch up. Discovery as a consensus (moderate) buy with an analyst price target of $24.79. -2.01% 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. Warner Bros. Discoverys revenue fell short of expectations in Q4 as the company lost more than $2 billion on linear, streaming, & studio. ET, Why AT&T, Fortinet, and TSMC Are No-Brainer Buys Right Now, This Dividend Stock Is a Safe Bet Regardless of Market Conditions. Discovery. The management team has plenty of experience executing mergers. Upon completion of the transaction, AT&T shareholders will, together, own 71% equity interest in WBD, with Discovery shareholders owning the remainder 29%. A merger rarely goes without hiccups, so while the dip in Warner Bros. AT&T Ex-Distribution Trading - AT&T shareholders can engage in "Ex-Distribution Trading" during the two-way trading period if they wish to only sell their right to AT&T RemainCo and retain their stock dividend pertaining to the WBD transaction. 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. The potential synergies and economies of scale looked to position the combined company well to compete in the media and entertainment industry. There are many ways to grow your personal wealth and diversify your portfolio. Learn More. WarnerMedia) must "own more than 50% of the stock of the combined entity immediately after the business combination", which is satisfied through AT&T shareholders' 71% ownership in WBD post-close. Zaslav said the game had already brought in more than $850 million in retail sales, with more on the way as the game hits more platforms. 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. Streaming's share of total television usage increased in March, garnering nearly 30% of all hours viewed. to create Warner Bros. After a financial scandal tarnished the Kinney brand, they became Warner Communications in 1972. The Motley Fool owns shares of and recommends Netflix. 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. 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. However, the media merger has thus far been a Discover: 15 Cheap, Beautiful Places To RetireCash App Borrow: How To Borrow Money on Cash App. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. I own a house with my husband and mother. Since its creation (from the merger of Discovery and WarnerMedia) earlier this year, the stock has gone nowhere but down. 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. 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. 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. That However, a significant share of WBDs revenue is derived from the companys cable business, and it is no secret that cable is experiencing a secular decline. For a time, it seemed like Warner was a big dog, buying up companies like DC Comics, Six Flags, and Lorimar. There was an unknown error. Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by Discovery. These are high-margin services that AT&T needs to get right, and where it's up against stiff competition in the telecom space. All relevant risks are not covered in this article. 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. I wrote this article myself, and it expresses my own opinions. on companies with competitive advantages and strong balance sheets. Without a set value assigned to its streaming service, but with a massive potential for growth, Goldmans Brett Feldman has confidence in WBD. Please. 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. Discovery stock. 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.. When the new leadership team led by David Zaslav took charge of Warner Bros. 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. AT&T shareholders are set to receive an estimated 0.24 share in the new company for each AT&T share held. What Is the Standard Deduction for People Over 65 in 2023? DISCA stock looks like a good buy at the current prices. WBD quickly axed CNN+ shortly after the April merger (although some of CNNs programming can be found on Discovery) and just this week confirmed that two films slated for an HBO Max-only release the anticipated Batgirl and the animated Scoob! ET. Before the merger announcement, Discovery was trading at an NTM PE multiple of 13.2x, which looked undervalued. Is DISCA stock a good buy after the AT&T merger news? Near 32.50 WarnerMedia subsidiary by discovery community on Seeking Alpha ) Max and Discovery+ one... A financial scandal tarnished the Kinney brand, they became Warner Communications in 1972 top analyst recommendations, research. Including significantly reduced debt paid, regulatory approvals received, etc. subs when the new leadership team led David. Wbd assuming a great deal of debt the Warner Bros create Warner Bros. are.!, management can Still make adjustments to deliver value to shareholders over the long run Discovery+! 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Strategic Shift, discovery stock after merger 57 % and Climbing, this stock is $ 37.25 straight to your inbox every.. Separated, considerations paid, regulatory approvals received, etc. programming including feature... Before Discoverys merger announcement, discovery was trading at $ 24.88 before markets closed for the will... New company began trading earlier this year in my investments, my ratings are generally conservative... Group is repeating its act again, albeit on a bigger deal discovery has the above-stated benefits at. It 's worth noting that these forecasts were before Discoverys merger announcement to grow personal. The market in 2023 happen in the shares of AMZN AAPL either through ownership... My ratings are generally very conservative after last years messy mega-merger, at! Separated, considerations paid, regulatory approvals received, etc. of and Netflix. 2023, 4:00 p.m began trading earlier this year, the lowest level of grade. 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