Warner Bros. Considering the intense competition in this space, I believe caution at this stage is warranted. 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. Discovery has faced more cautious advertisers, ongoing cord-cutting, competition within streaming and upheaval created from the merger deal itself. On Friday, Discovery shareholders formally approved the mega-combination of the factual and lifestyle media powerhouse Discovery with AT&Ts entertainment arm. Upon completion of the transaction, AT&T shareholders will, together, own 71% equity interest in WBD, with Discovery shareholders owning the remainder 29%. These offers do not represent all deposit accounts available. Discovery (DISCA) stock is trading sharply higher on May 17 after it announced a definitive agreement to combine with AT&Ts media assets. The potential synergies and economies of scale looked to position the combined company well to compete in the media and entertainment industry. After last years messy mega-merger, executives at Warner Bros. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. Is DISCA stock a good buy after the AT&T merger news? I wrote this article myself, and it expresses my own opinions. These issued Spinco common stocks can be exchanged for 0.24 WBD common stocks post-close based on the stock dividend exchange ratio previously discussed. There are many ways to grow your personal wealth and diversify your portfolio. I am not receiving compensation for it (other than from Seeking Alpha). Before the merger announcement, Discovery was trading at an NTM PE multiple of 13.2x, which looked undervalued. In a filing in December, Warner Bros. 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. Instead of splitting, AT&T's WarnerMedia will be spinning-off and becoming Warner Bros. Discovery. This segues into a comparison of WBDs financial firepower with that of its rivals. While cautious about an already crowded streaming market and international expansion issues, Morningstar analyst Neil Macker is bullish on the company, sharing an estimated share price of $40 and an enthusiastic outlook for the media conglomerates capacity for growth. Discovery Stock Rises Following Merger Completion, Ricou Browning, Star of Creature From the Black Lagoon, Dies at 93, It's Always Sunny in Philadelphia Teases Gritty Cameo, Pokemon Cosplay Celebrates Misty's Anime Comeback, Burger King Adding Spicy Chicken Fries to Menu, Jon Hamm Reportedly Engaged to Mad Men Co-Star Anna Osceola, Josh Gad Takes Over as Jungle Cruise Skipper at Disneyland, AMC Theatres to Launch New Lines of Popcorn at Walmart. The merger with Discovery has the above-stated benefits for AT&T, including significantly reduced debt. Revenue came in at $11 billion, compared with $3.19 billion in the prior-year quarter. AT&T is also still behind competitors in 5G deployment, and is up against stiff competition in the fiber broadband space. Should we prevent her from inheriting it? At the time 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. we will continue to be very thoughtful about our spend. Ahead of the Warner Bros. Youre reading a free article with opinions that may differ from The Motley Fools Premium Investing Services. 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). AT&T stockholders will end up owning 71 percent of the new Warner Bros. Investors should also consider that producing streaming content is costly, and WBD assumed a great deal of debt when it took on Warner Brothers. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). 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. The companies are forecasting a free cash flow conversion ratio of 60 percent, which looks very healthy. 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. The telecom giant also filed a 652-page Form 8K document detailing the transaction structure. Step 5 The Distribution - Existing AT&T shareholders as of record date will receive one Spinco common stock for each AT&T common stock owned on the "Distribution Date" determined by the board of AT&T prior to completion of the WBD merger. The streaming merger is the latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. 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. Essentially, AT&T will transfer 100% of its owned WarnerMedia assets into the Magallane, Inc. Spinco prior to the completion of the transaction. It's a busy time for Warner, who besides the Discovery merger are also reportedly in the market for a buyer for The CW, a network they co-own with Paramount, the parent company of CBS (and ComicBook.com). DISCA stock looks like a good buy at the current prices. The companies are also forecasting annual cost synergies of $3 billion. Price as of February 28, 2023, 4:00 p.m. May 17, 2021 2:01 PM EDT. 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. 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. Readers should consider this when weighing my buy/hold/sell recommendations. We currently are holding a limited-time sale with 10% off your first year! The reality of stock investment is that there's no better tool for building your wealth over time. 2023 The Hollywood Reporter, LLC. 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. 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. takes the proverbial cake, with a stock price that plummeted over 65%. All articles are my personal perspective on a given prospective investment and should not be considered as investment advice. Discovery. 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". 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. According to the estimates compiled by CNN Business, Discovery has a median target price of $41.5, which is a premium of 16.4 percent over its May 14 closing prices. I am not receiving compensation for it (other than from Seeking Alpha). The blended average of the combined WBD valuation range with and without synergies is about $102.2 billion to $153.8 billion. Discovery have tumbled 45.2% over the past 12 months. Since I require a discount in the share valuations of my investments, my ratings are generally very conservative. 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. WarnerMedias domestic linear TV revenue is projected to decline by 2% annually through 2025. Discovery Makes a Dramatic Strategic Shift, Up 57% and Climbing, This Stock Is Still a Bargain Buy in 2023. Its an app that people can use just like a regular wallet to store their card details and information. The Motley Fool recommends Discovery (C shares). By comparison, the S&P 500 index 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. 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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. Warner Bros. Discovery ("WBD"). 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.. 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 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. 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. Discovery (WBD) CEO David Zaslav announced plans to combine HBO Max and Discovery+ into one streaming service. Discovery CEO David Zaslav will run the merged giant, with Discovery CFO Gunnar Wiedenfels serving as the new companys CFO. 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. However, I admit I have reservations regarding the companys debt load and financial prowess. 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. Now consider that the portfolio of Discovery+ will be added to that of HBOMax, and you have the makings of a content king. Consequently, I rate WBD as a HOLD. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Apple, Fortinet, Intel, Qualcomm, Taiwan Semiconductor Manufacturing, and Warner Bros. 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. In the process of merging AT&T at 71% and 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. Furthermore, unlike Netflix, management recently reported fairly robust subscription growth for Discovery and Warner Brothers. 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. So, in order to really do a split, you are going to have to create enough demand for that 1.7 billion for an AT&T shareholder base that is dividend-focused retail investors and income-focused funds, which represent 60 to 70 percent of the telecom conglomerates total investors and likely would not participate in this structure, the AT&T CFO explained. Madonna Breaks Silence on Death of Brother Anthony Ciccone: You Planted Many Important Seeds, Paramount CFO: Streaming Content Spending Could Come in Below $6B Target In 2024, BBC Journalism Union Members Vote in Favor of Strike. 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 Please note that I am in the process of planning a subscription service with Seeking Alpha's Marketplace. Copyright 2023 Market Realist. We feel really good about where we are.. 16 Million Approved for Biden Student Loan Forgiveness Plan Will Supreme Court Uphold? 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. WBDs forward P/E and 5-year PEG ratio, if accurate, indicate the stock is trading at a bargain. There is currently no definitive answer to when the WBD merger will close or what its post-close value will be. Discovery stock was up 5% in midday trading on the stock market today, near 32.50. The new company, of which Discovery shareholders will own about 29%, should become more of a force in global streaming. For a time, it seemed like Warner was a big dog, buying up companies like DC Comics, Six Flags, and Lorimar. 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. When you are thinking about how to As Stock Market Cools, Experts Advise How To Brace for the Worst. I have no business relationship with any company whose stock is mentioned in this article. Warner Bros. Management discussed a number of concerns to be addressed now that the merger is complete. 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. Here are the key levels for Zaslav hasnt been shy in making changes that align with the Warner Bros. Warner Bros. Zaslav, in the companys earnings release, said that major restructuring decisions were behind us. However, Warner Bros. That compares to $140 million in net income and EPS of $0.21 in the comparable quarter. 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. Shares of Warner Bros. Please. Discovery as a consensus (moderate) buy with an analyst price target of $24.79. 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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. 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. For example, institutional investors who bought AT&T stock for other reasons -- such as its dividend -- might not want Warner Bros. The service will allow you to follow my model portfolio, interact with me directly, and participate in chat rooms with other subscribers. Details on how the Biden administration will evaluate requests for the semiconductor incentives were released by the Commerce Department. 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. 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. AT&T shareholders are set to receive an estimated 0.24 share in the new company for each AT&T share held. 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. Management projects the combined company will generate $52 billion in revenue. Please. Now, the record date is not the same as the transaction completion date. Discovery Communications and its three share classes will no longer exist as the company, unlike AT&T, will fully be merged into Warner Bros. 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. So why did a spinoff of WarnerMedia make sense as a key step in the combination? One of the analysts rates WBD as a sell. But upon consummation of the deal, all Discovery shares will merge into the new company with one vote per share. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. 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. Many investors got shares of the newly created company without doing anything. Warner Bros. Understanding how profitable the company is in relation to its stock price can be an important consideration 3M is a major American corporation with over 60,000 products in its portfolio. Apple, one of the largest tech giants in the world, designs and manufactures cell phones, laptops, and smart devices. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. has fallen 5.8% over that period. Shop Pay is an innovative payment solution developed by Shopify. share conversion ratios, estimated WBD shares outstanding post-close, recent Discovery and AT&T closing share price, peer comps, etc.) 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". WBD Transaction Structure (AT&T 8K filing, with annotations by Author. Discovery has over 15 million paying streaming subscribers globally, while HBO and HBO Max reportedly have 64 million subscribers globally. 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%. 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. Boutique investment research shop providing professional coverage on disruptive thematic equities. Leading up to WBDs second quarter earnings report, a number of equities analysts issued ratings statements and reduced price objectives for the company, including Cowen ($24, May 12), Bank of America ($23, July 14) and Moffett Nathanson ($18, July 22). The new management is trying hard to turn around the ship. Billy Duberstein owns shares of AT&T, Discovery (C shares), and Netflix. assets separated, considerations paid, regulatory approvals received, etc.) A key step in the combination the at & T share held & Ts entertainment arm, &... 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