We expect that Zaslav will use his experience to help Warner Bros. It has been awful time for investors in media company Warner Bros. NFLX has a projected net debt-to-adjusted EBITDA ratio of 1.3 for 2022. In the last quarter before the merger, AT&T reported 2.5% year-over-year revenue growth in its Warner segment, including 16% growth in the Direct-to-Consumer business. Wall Street has been discussing AT&Ts decision on a spinoff as the structure of the deal, which it unveiled on Feb. 1. Our analysis provides a deep dive on growth drivers present in the secular market to identify outperforming investments. 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. Investors had high hopes for Warner Bros. Price as of February 28, 2023, 4:00 p.m. 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. This array of content serves to attract and retain subscribers. Management discussed a number of concerns to be addressed now that the merger is complete. As a result, the new team reduced earnings projections by about $2 billion. When Discovery and AT&T announced their intent to merge Discovery and WarnerMedia, it made a lot of sense. The company reported nearly $450 million in next generation revenue, a 55% increase over the prior-year quarter. WBD was trading at $24.88 before markets closed for the holiday weekend. AT&T and Discovery on Monday announced that they will merge their media assets in a megadeal that creates a stronger rival to Walt Disney and Netflix amid global Discovery. Market Realist is a registered trademark. Discovery+, added two million subscribers in the quarter, boosting its subscriber count to 24 million. In his first earnings report since an April merger created one of the largest media companies in the U.S., on Aug. 4 Warner Bros. WBD projects $20 billion in content spend in 2022. 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. I have approximately 20 years experience as a retail investor. Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. Read More About: AT&T I/we have a beneficial long position in the shares of DISCK either through stock ownership, options, or other derivatives. I have no business relationship with any company whose stock is mentioned in this article. With a loss of 6% in 2022, Paramount Global (PARA) stands out as the winner, so to speak, among this bunch. Erik Khalitov/iStock Unreleased via Getty Images. I have no business relationship with any company whose stock is mentioned in this article. The decision has many financial experts speculating on the best way to approach the companys stock moving forward. The new company, of which Discovery shareholders will own about 29%, should become more of a force in global streaming. Lawrence Nga has no position in any of the stocks mentioned. All articles are my personal perspective on a given prospective investment and should not be considered as investment advice. Warner Bros. Warner Bros. I am a also value / buy and hold investor. I am a retail investor, with no formal training in investing. Learn More. 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. 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%. 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. 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". 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. Cost basis and return based on previous market day close. - April 18, 2022 08:39 am EDT. WBD currently trades for $18.88 a share. All relevant risks are not covered in this article. AT&T and Discovery sound optimistic about the new company's outlook. As of Aug. 5, MarketBeat lists Warner Bros. Magallane, Inc. is actually the "Spinco" subsidiary, wholly owned by AT&T, created specifically for the spinoff of its WarnerMedia assets. Investors will learn more in the coming quarters about how things are working out. 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. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). ET. Discovery stock. 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. And Discovery's largest shareholder, John Malone, supported the deal wholeheartedly. Looking for a helping hand in the market? 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. distribution of Spinco common stock to eligible AT&T shareholders as of record date), which occurs prior to completion of the WBD merger. Warner Brothers has over 100,000 hours of programming including 8,600 feature films and 5,000 TV programs in its content library. I seek a degree of safety in my investments by. 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. It's worth noting that these forecasts were before Discoverys merger announcement. Price as of February 28, 2023, 4:00 p.m. 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 corporation is positioned to achieve material scale as a global streamer while also fortifying its linear networks business and driving significant cost synergies, and that its merger integration risks and cyclical pressures on its linear advertising revenue are more than fully reflected in the stock at current levels, per The Fly. At the end of 2021, the pro forma debt for WBD was over $56 billion. Is This the Best Streaming Stock for 2023? As part of the agreement, AT&T will get In 1989, Warner merged with Time Inc., publishers of Time and Life magazines, who were almost immediately forced to buy Warner Bros. after a hostile takeover attempt by Paramount (who, funny enough, wanted Time, not Warner). Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. If you have an ad-blocker enabled you may be blocked from proceeding. AT&T has applied an exchange ratio of 2.4483 (based on the quotient of 71% / 29% WBD post-close ownership structure) to about 698 million Discovery shares outstanding on a fully diluted basis as of March 9, 2022 to determine the allocation of approximately 1,709 million shares of WBD common stock to AT&T shareholders post-close. 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. 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. One of the keys to HBO's growth is international markets, where it has lagged behind Netflix and others. In the process of merging AT&T at 71% and AT&T is also still behind competitors in 5G deployment, and is up against stiff competition in the fiber broadband space. 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. S&P rates WBDs debt as BBB-/positive, the lowest level of investment grade. All Rights Reserved. Could AT&T Stock Beat the Market in 2023? Discovery is now a buy, hold or sell. Is this happening to you frequently? Please try again later. The consensus 12-month price target of the five analysts rating the stock is $37.25. I am not receiving compensation for it (other than from Seeking Alpha). Ahead of the fourth-quarter earnings, some analysts said the results would present an opportunity for management to reframe the companys path forward. He recently completed a technical communication diploma and holds previous university degrees in journalism, sociology and criminology. Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by Discovery. Discovery has generally executed well through the 2018 Scripps Networks Interactive acquisition, and Discovery CEO David Zaslav will become CEO of the new combined company, which is likely a telling move. When you buy stock, you're essentially buying a tiny piece of the company it represents. Furthermore, unlike Netflix, management recently reported fairly robust subscription growth for Discovery and Warner Brothers. 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. However, Discovery is an expert in international content, with a presence across 220 markets, and expertise adapting its unscripted content to many other languages. 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. 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. Considering the latest disclosure of WBD transaction details (e.g. To balance that debt, at the end of 2021, WBD had a bit over $4.1 billion in cash. Latest Technology & Communications News and Updates. $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. 2023 GOBankingRates. 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. 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. Several studies indicate consumers rate the companys streaming service as at or near the top in several categories. A number of HBO exclusive movies have quietly disappeared from the platform. If you Jakub Porzycki / NurPhoto / Shutterstock.com. Cost basis and return based on previous market day close. Copyright 2023 MarketWatch, Inc. All rights reserved. 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. 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. See: 9 Bills You Should Never Put on AutopayFind: 7 Things You Should Never Do When Planning For Retirement. Discovery (DISCA) stock is trading sharply higher on May 17 after it announced a definitive agreement to combine with AT&Ts media assets. As of 12/08/2022 I am rated among the top 3% of authors in terms of overall results. 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. 16 Million Approved for Biden Student Loan Forgiveness Plan Will Supreme Court Uphold? David Nadelle is a freelance editor and writer based in Ottawa, Canada. Discovery Makes a Dramatic Strategic Shift, Up 57% and Climbing, This Stock Is Still a Bargain Buy in 2023. Instead of splitting, AT&T's WarnerMedia will be spinning-off and becoming Warner Bros. 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. Warner Bros. Together, these adverse developments impacted Warner Bros. 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 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. 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