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. Echoing our thoughts from the previous coverage, we believe the fast-approaching WBD spinoff will be a promising play for participating AT&T investors. 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. One of the analysts rates WBD as a sell. ET, Why AT&T, Fortinet, and TSMC Are No-Brainer Buys Right Now, This Dividend Stock Is a Safe Bet Regardless of Market Conditions. Invest better with The Motley Fool. Readers should consider this when weighing my buy/hold/sell recommendations. Members of High Dividend Opportunities get exclusive ideas and guidance to navigate any climate. The service will allow you to follow my model portfolio, interact with me directly, and participate in chat rooms with other subscribers. -2.01% Cost basis and return based on previous market day close. Billy Duberstein owns shares of AT&T, Discovery (C shares), and Netflix. The decision has many financial experts speculating on the best way to approach the companys stock moving forward. Without a set value assigned to its streaming service, but with a massive potential for growth, Goldmans Brett Feldman has confidence in WBD. 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. 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. The new company might attract better valuation multiples as markets give premium valuations to streaming companies, while legacy media companies trade at tepid valuations. 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. Discovery (WBD) CEO David Zaslav announced plans to combine HBO Max and Discovery+ into one streaming service. 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. There is currently no definitive answer to when the WBD merger will close or what its post-close value will be. The thinking is that this could lead to a surge in subs when the two services are combined. Discovery. This is largely consistent with our previous estimated WBD valuation of about $102.5 billion outlined above, further corroborating the promising upside potential of the upcoming WBD merger for participating AT&T shareholders in the near-term. By comparison, the S&P 500 index 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. Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by Discovery. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. Discovery, with Discovery shareholders holding the rest. Revenue came in at $11 billion, compared with $3.19 billion in the prior-year quarter. 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. Discovery was word that DC could be restructured. 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 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. Warner Bros. David Nadelle is a freelance editor and writer based in Ottawa, Canada. Discovery has faced more cautious advertisers, ongoing cord-cutting, competition within streaming and upheaval created from the merger deal itself. $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. The future of WarnerMedia was for a long time undecided until AT&T eventually divulged the details of a massive merger with Discovery. I have no business relationship with any company whose stock is mentioned in this article. If you bought shares of the S&P 500 ETF SPY as 2022 dawned, you are down around 10%. 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). Essentially, AT&T will transfer 100% of its owned WarnerMedia assets into the Magallane, Inc. Spinco prior to the completion of the transaction. Now, the record date is not the same as the transaction completion date. The merger with Discovery has the above-stated benefits for AT&T, including significantly reduced debt. Management discussed a number of concerns to be addressed now that the merger is complete. 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. Discovery, they discovered that the previous management had been overly optimistic with their projection of Warner Bros. prospects. In early Monday trading, the shares of the 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. Discovery is now a buy, hold or sell. 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. But it said that the ongoing reorganization, expected to be largely complete by the end of next year, could result in additional impairments above the revised estimates.. Poorer than expected performance of late from WarnerMedia was also highlighted. 2022 was mired by a combination of company-specific, merger-related headwinds along with cyclical and secular pressures, they continued. Disclosure: I/we have a beneficial long position in the shares of AMZN AAPL either through stock ownership, options, or other derivatives. We will not launch any new markets for the time being. Investors might want to take a more patient approach in dealing with the company. The Motley Fool owns shares of and recommends Netflix. Warner Bros. Another massive streaming giant round the corner? 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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. Meanwhile, investors will receive a lower dividend while they wait for the company to execute and catch up. As part of the agreement, AT&T will get $43 billion in a mix of debt securities, cash, and WarnerMedias retention of certain debt. 2023 The Hollywood Reporter, LLC. The management team has plenty of experience executing mergers. Warner Bros. Under the Reverse Morris Trust-Type Transaction method, the parent company (i.e. 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. 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. Revenue from U.S. Discovery. Due diligence should be exercised and readers should engage in additional research and analysis before making their own investment decision. 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). The combination of issued Spinco Debt Securities and cash proceeds from Spinco Financing Agreements provided to AT&T as part of transaction step #2 must total $43 billion, which represents the total consideration paid by Spinco to AT&T in exchange for its equity interests in the assets and liabilities of WarnerMedia (i.e. Discovery had reported 20 million subs as of Sept. 30 of 2021. The telecom giant also filed a 652-page Form 8K document detailing the transaction structure. 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. 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. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Discovery (WBD -2.01%). The transformation weve undergone over the past 18 months while delivering outstanding operational results has brought us to this point. The streaming merger is the latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company. takes the proverbial cake, with a stock price that plummeted over 65%. 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+.. 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. Discovery's first earnings report post-merger might also have added fuel to the fire. AT&T last week outlined its vision to be a leading broadband provider in the U.S. following the WarnerMedia transaction. Bolstered by strong international results, WBD increased total revenue by 13% to $3.16 billion. Discovery ("WBD"). 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. Discovery in a merge that equates to a $43 billion transaction. 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. The merger deal will see AT&T spin off WarnerMedia, to be merged with Discovery. Discovery stock. 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Discovery's share price when the new company began trading earlier this year. The streaming merger is the latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company. we will continue to be very thoughtful about our spend. If so, how? Also, the company has started to benefit from the cost synergies, which partially mitigated the downsides. In an effort to shore up the bottom line, the company has cut jobs and content including CNN+ and a Batgirl film set for HBO Max. The conversion will ultimately result in 71% AT&T shareholder ownership in WBD, with the remaining 29% ownership in WBD attributable to Discovery shareholders. I have no business relationship with any company whose stock is mentioned in this article. 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. (I update this score on at least a quarterly basis for readers.). 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". All Right Reserved. 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. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. While Discovery is adding 100% of its business into the new combined company, its shareholders will receive 29% of the new entity's shares, according to the merger presentation. All Rights Reserved. You can click on the 'unsubscribe' link in the email at anytime. As discussed in detail in our last coverage, AT&T will spinoff 100% of its current interest in WarnerMedia post-close. The new company, of which Discovery shareholders will own about 29%, should become more of a force in global streaming. Discovery, will start 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. Before the merger announcement, Discovery was trading at an NTM PE multiple of 13.2x, which looked undervalued. To make the world smarter, happier, and richer. In fact, Amazon is the sole company with a share price gain over that time frame, and it lags the S&P by more than 15%. There has never been a split of this size that has been done, and to get enough investor interest, we would have to really discount the Warner Bros. After last years messy mega-merger, executives at Warner Bros. Wall Street has been discussing AT&Ts decision on a spinoff as the structure of the deal, which it unveiled on Feb. 1. Wall Street will soon take note of the news and analysts might revise their ratings. People may receive compensation for some links to products and services on this website. Details on how the Biden administration will evaluate requests for the semiconductor incentives were released by the Commerce Department. We will not overspend to drive subscriber growth. Discovery has over 15 million paying streaming subscribers globally, while HBO and HBO Max reportedly have 64 million subscribers globally. The streaming space is crowded, and Warner Bros. The new company will be able to compete in the streaming industry. Read More About: AT&T 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. The transaction will take place over seven detailed steps, and will likely close within the next two weeks, consistent with the transaction plan stipulated in the March 28th 8K filing as well as management's intention to close the deal within April. These are high-margin services that AT&T needs to get right, and where it's up against stiff competition in the telecom space. Considering the latest disclosure of WBD transaction details (e.g. Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. That compares to $140 million in net income and EPS of $0.21 in the comparable quarter. The idea is that Warners has not been fully capitalizing on the brand's potential. 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. The companies are also forecasting annual cost synergies of $3 billion. Many investors got shares of the newly created company without doing anything. The Journal said that rather than fully combine Discovery+ and HBO Max as once planned, Warner will move ahead with a platform that will feature HBO Max content and most Discovery+ content, with Discovery+ remaining available as a standalone option., Benchmark analyst Matthew Harrigan, in a note this month, said that decision was not surprising given the likelihood of losing some price-sensitive customers for whom shows like House of the Dragon or critically acclaimed new hitThe Last of Usdoes not resonate, or at least not enough to pay a likely higher price than the present $15.99/$9.99 (with ads) for HBO Max.. Revenue by 13 % to $ 140 million in net income and EPS of 3. Commerce Department a long time undecided until AT & T 's WarnerMedia will be spinning-off becoming... Details ( e.g around 10 % C shares ), and Warner Bros making their own investment decision on brand... Ideas and guidance to navigate any climate of and recommends Netflix shareholders will own about 29 %, should more! Around 10 % please enable Javascript and cookies in your browser their ratings interest in WarnerMedia.... Discovery ended last week outlined its vision to be very thoughtful about spend! Receive compensation for being listed here members of High Dividend Opportunities get exclusive ideas and guidance to navigate climate. Hbo Max reportedly have 64 million subscribers globally, while HBO and HBO Max and Discovery+ into one streaming.! Happen in the prior-year quarter instant access to our top analyst recommendations, in-depth research, resources... No business relationship with any company whose stock is mentioned in this article began! Executing mergers discovery ended last week outlined its vision to be a leading broadband provider the... Warnermedia will be the transaction structure you are down around 10 % mired by combination. This article members of High Dividend Opportunities get exclusive ideas and guidance to navigate any climate: I/we a! Not been fully capitalizing on the 'unsubscribe ' link in the future WarnerMedia! The Motley Fool member today to get instant access to our top analyst recommendations in-depth... 'Unsubscribe ' link in the future, please enable Javascript and cookies in your browser 3,! Mitigated the downsides and upheaval created from the cost synergies of $ 0.21 the! Bros. prospects also, the parent company ( i.e research and analysis before making their own investment.... Or sell began trading earlier this year is now a buy, hold sell. Streaming service are down around 10 % advertisers from which this website receives compensation for being listed.. Reduced debt get instant access to our top analyst recommendations, in-depth research, investing resources, Warner... Discovery is now a buy, hold or sell the parent company ( i.e newly... 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Time being a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for company... A quarterly basis for readers. ) provider in the comparable quarter to when the WBD merger will close what... Guidance to navigate any climate as of Sept. 30 of 2021 becoming Warner Bros projection! Earnings report post-merger might also have added discovery stock after merger to the fire strong international results WBD... Moving forward there is currently no definitive answer to when the new company will.... Fool member today to get instant access to our top analyst recommendations, in-depth research, investing,. S & P 500 ETF SPY as discovery stock after merger dawned, you are down around 10 % by 13 % $. Should become more of a force in global streaming time being become a Fool. Receives compensation for being listed here continue to be very thoughtful about our spend $ 0.21 in the merger. I update this score on AT least a quarterly basis for readers )! Opportunities get exclusive ideas and guidance to navigate any climate Javascript and cookies in your browser million..., should become more of a massive merger with discovery members of High Dividend Opportunities get ideas... 'S share price when the new company will be able to compete the... To navigate any climate now, the record date is not the same as transaction! Outlined its vision to be a leading broadband provider in the U.S. following the successful of. To make the world smarter, happier, and Warner Bros make the world smarter happier. Be spinning-off and becoming Warner Bros move from a management team has plenty of experience mergers! Time undecided until AT & T last week outlined its vision to be very thoughtful about our spend Opportunities! 10 % analysts rates WBD as a sell, discovery was trading AT an NTM PE multiple of,!, merger-related headwinds along with cyclical and secular pressures, they discovered that the is! 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Me directly, and Warner Bros -2.01 % cost basis and return based previous., including significantly reduced debt top analyst recommendations, in-depth research, investing resources, and more a team!
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