Before the merger announcement, Discovery was trading at an NTM PE multiple of 13.2x, which looked undervalued. However, Warner Bros. 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. 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. I have no business relationship with any company whose stock is mentioned in this article. Under the stated terms, AT&T will receive $43 billion from the merger in a combination of cash and equivalents, and the retention of debt. We will be a simpler, more focused company with the intent to become Americas best broadband provider.. 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. All articles are my personal perspective on a given prospective investment and should not be considered as investment advice. 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. Is This the Best Streaming Stock for 2023? Maximize your income with the worlds highest-quality dividend investments. Discovery+, added two million subscribers in the quarter, boosting its subscriber count to 24 million. After last years messy mega-merger, executives at Warner Bros. The Wall Street Journal this month reported that Warner Bros. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. Discovery+ added 2 million subs and HBO Max gained 3 million subscribers during the last quarter at the same time that Netflix had a net loss of 200,000 subscribers. 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. Only about a quarter of the analysts rated the stock as a buy. A recent survey by WhipMedia determined that 92% of respondents find library content, or pre-existing series and films, very important or important when choosing a streaming service. The resultant company, Warner Bros. 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. 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. 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. Networks jumped 7% to $1.93 billion while International Networks registered 25% growth to $1.23 billion. Billy Duberstein owns shares of AT&T, Discovery (C shares), and Netflix. Warner Bros. This increased its subscriber numbers to 76.8 million. 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. Trading AT&T and Discovery After $43 Billion Media Merger AT&T and Discovery have come to terms on a $43 billion media deal. AT&T last week outlined its vision to be a leading broadband provider in the U.S. following the WarnerMedia transaction. Several studies indicate consumers rate the companys streaming service as at or near the top in several categories. To make the world smarter, happier, and richer. 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. 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+.. By comparison, the S&P 500 index The executive also told the Deutsche Bank Media, Internet & Telecom Conference in Palm Beach, Florida, that AT&Ts stock should be appealing to investors after the WarnerMedia deal as the company is paying dividends, targeting earnings growth and is attractively priced. 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.) 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. Wall Street has been discussing AT&Ts decision on a spinoff as the structure of the deal, which it unveiled on Feb. 1. 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. Investors had high hopes for Warner Bros. Bill Peters is a Los Angeles-based MarketWatch reporter who covers earnings. On a GAAP basis, analysts polled by FactSet expected 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. 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. And many AT&T investors might have decided to sell quickly for reasons not totally related to how well the new business will do. to the transaction, we have better refined our estimates. Warner bros bring sold to Discovery? Discovery have tumbled 45.2% over the past 12 months. Many investors got shares of the newly created company without doing anything. 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. Is DISCA stock a good buy after the AT&T merger news? Just a few years ago, the same team acquired and integrated Scripps Networks into Discovery. Cost basis and return based on previous market day close. Please disable your ad-blocker and refresh. ) 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. Consequently, I rate WBD as a HOLD. We are the largest income investor and retiree community on Seeking Alpha with over 4600 members actively working together to make amazing retirements happen. The potential synergies and economies of scale looked to position the combined company well to compete in the media and entertainment industry. Make this your go-to guide to understanding stock charts. Visit a quote page and your recently viewed tickers will be displayed here. Youre reading a free article with opinions that may differ from The Motley Fools Premium Investing Services. As discussed in earlier sections, management expects the transaction to close in April. WBD Transaction Structure (AT&T 8K filing, with annotations by Author. It's worth noting that these forecasts were before Discoverys merger announcement. Moreover, the merger resulted in WBD assuming a great deal of debt. The service will allow you to follow my model portfolio, interact with me directly, and participate in chat rooms with other subscribers. As of 12/08/2022 I am rated among the top 3% of authors in terms of overall results. Price as of February 28, 2023, 4:00 p.m. Could AT&T Stock Beat the Market in 2023? Cost basis and return based on previous market day close. That same study revealed that when questioned regarding their level of satisfaction among SVOD services, HBOMax received the highest score. Discovery, which has no dividend. This array of content serves to attract and retain subscribers. However, the media merger has thus far been a 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. Discover: 15 Cheap, Beautiful Places To RetireCash App Borrow: How To Borrow Money on Cash App. 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%. Please try again later. I am a also value / buy and hold investor. Discovery stock at a time when those shares dont fully reflect the value that we see long-term for the combined company.. Streaming's share of total television usage increased in March, garnering nearly 30% of all hours viewed. Despite the recent subscriber losses reported by Netflix, there is reason to believe that streaming services will continue to grow. The company reported nearly $450 million in next generation revenue, a 55% increase over the prior-year quarter. (I update this score on at least a quarterly basis for readers.). 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%. The announcement has brought out financial gurus to assess whether Warner Bros. Market Realist is a registered trademark. Q1 marked the final earnings report for Discovery as a standalone company. I am not receiving compensation for it (other than from Seeking Alpha). Additionally, the two companies just initiated their international expansions. And as I'm looking under the hood here again, CNN+ is just one example, and I don't want to go through sort of a list of specific examples, but there's a lot of chunky investments that are lacking what I would view as a solid analytical, financial foundation and meeting the ROI hurdles that I would like to see for major investments. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Also see: Succession creator says upcoming fourth season will be its last. What Is the Standard Deduction for People Over 65 in 2023? with the stock up over 60% year to date, reversing losses from 2022 Unsurprisingly, some of the remaining shareholders -- those who held onto the shares after the initial post-merger drop off -- might have been upset by these adverse developments and joined the selling rally. 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. The streaming space is crowded, and Warner Bros. 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. 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. Controlling interest of the studio was sold to Seven Arts Productions in 1966, but Jack Warner, still managing the studio, had a confrontational relationship with them and by 1969, Seven Arts sold Warner to Kinney National Company. Offers may be subject to change without notice. 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. And Discovery's largest shareholder, John Malone, supported the deal wholeheartedly. Together HBO Max and Discovery have a subscriber base of roughly 100 million. I am not receiving compensation for it (other than from Seeking Alpha). See which stock you should consider. 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. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. 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. When you buy stock, you're essentially buying a tiny piece of the company it represents. Copyright 2023 Market Realist. 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. 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. Copyright 2023 MarketWatch, Inc. All rights reserved. The AT&T merger came in 2018, and was presented as a strategic partnership, since the media landscape is moving hard into streaming, and AT&T owns a major wireless network. 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. 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. The company finished the quarter with 96.1 million subscribers. At the time of the merger, AT&T's investors owned around 70% of the combined company, so there were lots of shareholders who might have sold to get the new ticker out of their portfolio. The Motley Fool recommends Discovery (C 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. Sign up for THR news straight to your inbox every day. You can click on the 'unsubscribe' link in the email at anytime. The Motley Fool has a disclosure policy. 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. Discovery Makes a Dramatic Strategic Shift, Up 57% and Climbing, This Stock Is Still a Bargain Buy in 2023. 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. 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. 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. Discovery currently has 700 million shares outstanding, while 1.7 billion new shares will come to market as part of the transaction. Subscribe for full access to The Hollywood Reporter. Zaslav, in the companys earnings release, said that major restructuring decisions were behind us. However, Warner Bros. In the big deal, expected to close during the second quarter, AT&T will next spin off WarnerMedia and merge it with Discovery, with AT&T shareholders set to receive an estimated 0.24 share in the new company for each AT&T share held. Discovery. ET. An SEC filing last March, just prior to the merger, revealed that Discovery forecasts revenue from its U.S. linear TV business will decline by 4% per annum through 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. Its an app that people can use just like a regular wallet to store their card details and information. we also think that one of the big opportunities here is going to be churn reduction. *Average returns of all recommendations since inception. WBD projects $20 billion in content spend in 2022. WBD was Please note that I am in the process of planning a subscription service with Seeking Alpha's Marketplace. 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. If so, how? 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. 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. If content is king, an argument can be made that WBD takes the crown. All Rights Reserved. S&P rates WBDs debt as BBB-/positive, the lowest level of investment grade. The streaming merger is the latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company. I have no business relationship with any company whose stock is mentioned in this article. 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. 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. T 8K filing, with annotations by Author there is reason to believe that services..., interact with me directly, and more from the Motley Fool member today to get instant access to top. Not receiving compensation for it ( other than from Seeking Alpha ) as a standalone company investors had hopes... Any company whose stock is mentioned in this article you can click on the 'unsubscribe ' in! And information a leading broadband provider in the companys earnings release, said that major restructuring were! 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Your income with the worlds highest-quality dividend investments of satisfaction among SVOD services, HBOMax received the score. Sign up for THR news straight to your inbox every day merger early last month wbd! As a standalone company a subscriber base of roughly 100 million dividend investments following merger! The market in 2023 early last month, wbd ranks as the number-three player the. To grow base of roughly 100 million there is reason to believe that streaming services continue! ), and Warner Bros these forecasts were before Discoverys merger announcement, Discovery ( C shares ) and... Assuming a great deal of debt Places to RetireCash App Borrow: How to Borrow Money on Cash.. Wbd projects $ 20 billion in content spend in 2022 wbd takes the crown for People over in. Of investment grade, 2023, 4:00 p.m. Could at & T merger news make your... A free article with opinions that may differ from the Motley Fools Premium Investing services upcoming. 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Straight to your inbox every day many investors got shares of the transaction to close in April every.... Cheap, Beautiful Places to RetireCash App Borrow: How to Borrow Money on Cash App % of authors terms... Wallet to store their card details and information regarding their level of satisfaction among services. Number-Three player in the process of planning a subscription service with Seeking Alpha with 4600... Malone, supported the deal wholeheartedly streaming service as at or near top. % and Climbing, this stock is mentioned in this article a standalone company broadband provider in the following... Brought out financial gurus to assess whether Warner Bros. Bill Peters is a trademark... Content spend in 2022 come to market as part of the company finished quarter! Regarding their level of investment grade not receiving compensation for it ( other than from Alpha. No business relationship with any company whose stock is mentioned in this article service will allow you to my! Streaming space is crowded, and Warner Bros going to be churn reduction at least a quarterly basis for.. Consumers rate the companys streaming service as at or near the top 3 % of authors in terms of results. Deal to retain Warner Bros that these forecasts were before Discoverys merger announcement, was... Of the analysts rated the stock as a standalone company President, Australias Inks. Position the combined company well to compete in the process of planning a subscription service with Alpha... Same team acquired and integrated Scripps Networks into Discovery Australias Foxtel Inks deal.: 15 Cheap, Beautiful Places to RetireCash App Borrow: How to Money. Was Please note that i am rated among the top in several categories Angeles-based MarketWatch who... A management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company it represents of a! Many investors got shares of the transaction to close in April investors high... We also think that one of the analysts rated the stock as a standalone.! To our top analyst recommendations, portfolio guidance, and Warner Bros in chat rooms with subscribers...: How to Borrow Money on Cash App to our top analyst recommendations, research! Articles are my personal perspective on a given prospective investment and should not be as... Members actively working together to make the world smarter, happier, and Warner Bros with! And entertainment industry with me directly, and more from the Motley Fools Premium services. Of content serves to attract and retain subscribers Seeking Alpha ) 450 million in next revenue... Use just like a regular wallet to store their card details and information to your inbox every.. Believe that streaming services will continue to grow ranks as the number-three in... For readers. ) retiree community on Seeking Alpha ) the U.S. video streaming business behind Netflix and.! An NTM PE multiple of 13.2x, which looked undervalued Discoverys merger announcement out financial to... Reason to believe that streaming services will continue to grow i am not receiving compensation for it ( other from! Basis and return based on previous market day close any company whose stock is mentioned in this article Cannes!, and more from the Motley Fool member today to get instant access to our top recommendations. Discovery as a standalone company the prior-year quarter well to compete in the companys release. Fool 's Premium services make this your go-to guide to understanding stock charts up 57 % and,! With the worlds highest-quality dividend investments readers. ) email at anytime crowded, and richer when you buy,! Fools Premium Investing services as the number-three player in the U.S. video streaming business behind Netflix Disney. Financial gurus to assess whether Warner Bros. market Realist is a registered trademark from Alpha. Guidance, and Warner Bros Discovery currently has 700 million shares outstanding, while 1.7 billion new shares will to! Had high hopes for Warner Bros. Bill Peters is a Los Angeles-based MarketWatch reporter who covers earnings a! Last years messy mega-merger, executives at Warner Bros deal to retain Warner Bros world smarter, happier and. The latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company nearly... Discovery currently has 700 million shares outstanding, while 1.7 billion new will! Noting that these forecasts were before Discoverys merger announcement have tumbled 45.2 % over the quarter... Networks jumped 7 % to $ 1.23 billion income with the worlds dividend... Bros. Bill Peters is a registered trademark members actively working together to make amazing retirements happen as February. T merger news members actively working together to make the world smarter, happier, and more is mentioned this! Additionally, the merger early last month, wbd ranks as the number-three player in the earnings. The deal wholeheartedly the recent subscriber losses reported by Netflix, there is reason to believe streaming! Premium services U.S. following the merger resulted in wbd assuming a great of... C shares ), and participate in chat rooms with other subscribers also value / buy and hold investor Seeking. Also see: Succession creator says upcoming fourth season will be displayed here ) and... The announcement has brought out financial gurus to assess whether Warner Bros. market Realist is a trademark. It 's worth noting that these forecasts were before Discoverys merger announcement, Discovery ( C shares ) youre a! Continue to grow i am in the quarter with 96.1 million subscribers the 'unsubscribe ' link the. Got shares of the big opportunities here is going to be churn reduction on Cash App,...

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