Considering the record date is April 5th, we believe the transaction could close within a week's time at the earliest, considering AT&T's requirement to provide Discovery with a list of AT&T shareholders eligible for shares of WBD common stock at least five business days prior to the actual stock dividend distribution (i.e. WBD was trading at $24.88 before markets closed for the holiday weekend. 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. We could see some more consolidation in the streaming industry as the smaller players combine their resources to take on industry heavyweight Netflix. takes the proverbial cake, with a stock price that plummeted over 65%. Making the world smarter, happier, and richer. The streaming space is crowded, and 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. AT&T) wishing to divest a subsidiary (i.e. Due diligence should be exercised and readers should engage in additional research and analysis before making their own investment decision. With the megamerger of Discovery and AT&Ts WarnerMedia closing late on Friday, creating new media and entertainment giant Warner Bros. David has covered a wide variety of financial and lifestyle topics for numerous publications and has experience copywriting for the retail industry. The merger with Discovery has the above-stated benefits for AT&T, including significantly reduced debt. 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. 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. Warner Bros. Is this happening to you frequently? The Hollywood Reporter is a part of Penske Media Corporation. Discovery ("WBD"). 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. In the merger presentation, AT&T said it will pay out about 40% to 43% of free cash flow as its dividend, while giving a $20 billion-plus estimate for free cash flow Understanding how you are investing is just as important as what you are investing in. Discovery. So why did a spinoff of WarnerMedia make sense as a key step in the combination? It has been awful time for investors in media company Warner Bros. I seek a degree of safety in my investments by. Invest better with The Motley Fool. On a GAAP basis, analysts polled by FactSet expected Warner Bros. Learn More. You can click on the 'unsubscribe' link in the email at anytime. This segues into a comparison of WBDs financial firepower with that of its rivals. Learn More. But upon consummation of the deal, all Discovery shares will merge into the new company with one vote per share. Could AT&T Stock Beat the Market in 2023? 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. The specific transaction structure will be executed in the seven steps as follows: Step 1 The Separation - 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, AT&T will have to transfer all of its equity interests in the assets and liabilities attributable to its WarnerMedia business to the Magallanes, Inc. Spinco. Step 7 The Merger - Once transaction steps #1-7 are complete, Discovery's Drake Subsidiary, Inc. merger subsidiary will merge into Magallanes, Inc. Spinco, with the Spinco being the surviving "wholly owned subsidiary of WBD". AT&T is also still behind competitors in 5G deployment, and is up against stiff competition in the fiber broadband space. 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. 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's first earnings report post-merger might also have added fuel to the fire. At least both companies won't be distracted with an adjacent industry anymore. The company posted FCF of $238 million, and operating expenses decreased 8% to $907 million. 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+.. Chief Financial Officer Gunnar Wiedenfels, during Warner Bros. Discoverys I have no business relationship with any company whose stock is mentioned in this article. He recently completed a technical communication diploma and holds previous university degrees in journalism, sociology and criminology. Discovery (NASDAQ: WBD) when the stock went public last April. Subscribe for full access to The Hollywood Reporter. Shop Pay is an innovative payment solution developed by Shopify. I seek a degree of safety in my investments by concentratingon companies with competitive advantages and strong balance sheets. Discovery stock is a bargain buy Warner Bros. WBD, *Average returns of all recommendations since inception. AT&Ts WarnerMedia unit and Discovery Inc said on Friday that the two firms have completed the merger. After last years messy mega-merger, executives at Warner Bros. The firm maintained its market perform rating on Warner Bros. 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. On 7.14 billion current shares, that's about $1.18 per share, just a little more than half the $2.18 payout today. Discovery in a merge that equates to a $43 billion transaction. Management discussed a number of concerns to be addressed now that the merger is complete. we will continue to be very thoughtful about our spend. 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. We will not launch any new markets for the time being. - April 18, 2022 08:39 am EDT. The streaming merger is the latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the 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. Warner bros bring sold to Discovery? As discussed in earlier sections, management expects the transaction to close in April. NFLX also held $6 billion in cash. By comparison, the S&P 500 index The company also pointed to a weak macroeconomic environment and challenging dynamics in the streaming industry. For a time, it seemed like Warner was a big dog, buying up companies like DC Comics, Six Flags, and Lorimar. Offers may be subject to change without notice. Please try again later. Please disable your ad-blocker and refresh. ) If you have an ad-blocker enabled you may be blocked from proceeding. pertaining to the WarnerMedia spinoff, the telecom giant also submitted a, 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. ) As TIME reports, following Netflixs decision to add a discounted streaming subscription with commercials, the yet unnamed HBO Max/Discovery+ streaming service will be available in three payment tiers: a free one with ads, a discount tier with minimal ads and a premium level with no ads, according to Wiedenfels. To put that in perspective, Disney+ has over 103 million subscribers, while Netflix has around 208 million subscribers. Author's Note: Thank you for reading my analysis. When the new leadership team led by David Zaslav took charge of Warner Bros. 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. This array of content serves to attract and retain subscribers. Warner Bros. Of that, $15 billion will be generated by direct-to-consumer services. In the process of merging AT&T at 71% and However, I admit I have reservations regarding the companys debt load and financial prowess. DISCA stock looks like a good buy at the current prices. All articles are my personal perspective on a given prospective investment and should not be considered as investment advice. I am not receiving compensation for it (other than from Seeking Alpha). 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. Erik Khalitov/iStock Unreleased via Getty Images. 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 new company might attract better valuation multiples as markets give premium valuations to streaming companies, while legacy media companies trade at tepid valuations. We expect that Zaslav will use his experience to help Warner Bros. The new entity will focus on streaming services. Consequently, there could be significant overseas subscribers added. 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 2022 was mired by a combination of company-specific, merger-related headwinds along with cyclical and secular pressures, they continued. To management's credit, it has initiated corrective measures to offset these developments. Also see: Succession creator says upcoming fourth season will be its last. This might explain the initial fall in Warner Bros. I am not receiving compensation for it (other than from Seeking Alpha). All relevant risks are not covered in this article. In the age of large, mega-sized streaming companies, it appears that bigger is better. I wrote this article myself, and it expresses my own opinions. Were it not for the effects of foreign exchange, International would have recorded a 30% increase. Sign up for our daily newsletter for the latest financial news and trending topics. 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. Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by Discovery. 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. 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. 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