If you bought shares of the S&P 500 ETF SPY as 2022 dawned, you are down around 10%. Youre reading a free article with opinions that may differ from The Motley Fools Premium Investing Services. Let the power of quality research drive your investment convictions. 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 transformation weve undergone over the past 18 months while delivering outstanding operational results has brought us to this point. The management team has plenty of experience executing mergers. 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. 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. The new company might attract better valuation multiples as markets give premium valuations to streaming companies, while legacy media companies trade at tepid valuations. Networks jumped 7% to $1.93 billion while International Networks registered 25% growth to $1.23 billion. As part of the agreement, AT&T will get Discovery (NASDAQ: WBD) when the stock went public last April. AT&T shareholders are set to receive an estimated 0.24 share in the new company for each AT&T share held. There is meaningful churn on HBO Max, much higher than the churn that we have seen. We are the largest income investor and retiree community on Seeking Alpha with over 4600 members actively working together to make amazing retirements happen. Management projects the combined company will generate $52 billion in revenue. Discovery stock after the merger has been unpleasant, management can still make 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. 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. Readers should consider their own unique investment profile and consider seeking advice from an investment professional before making an investment decision. Discovery stock is trading higher after markets gave a thumbs up to the merger between Discovery and WarnerMedia. 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. Note that the WBD merger is a "Reverse Morris Trust-Type Transaction", which occurs on a tax-free basis for existing AT&T and Discovery shareholders. 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. The new company, of which Discovery shareholders will own about 29%, should become more of a force in global streaming. 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. Management also emphasized that the company will take a circumspect approach to content spend. Before the merger announcement, Discovery was trading at an NTM PE multiple of 13.2x, which looked undervalued. Discovery, will start 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. The company reported nearly $450 million in next generation revenue, a 55% increase over the prior-year quarter. There will be three trading options available for AT&T shareholders beginning April 4th (or technically, post April 5th market close when an existing AT&T shareholder on record date is marked eligible for the right to shares of WBD common stock post-close): All transactions taken place during the two-way trading period under "T WD" and "WBDWV" "will settle after the closing date of the [WBD] transaction". Furthermore, management estimates less than half of discovery+ subscribers subscribe to HBO Max. The Hollywood Reporter is a part of Penske Media Corporation. : Holiday Haunt have been shelved. What's been going on and is now the time to sell out of the stock? 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. With the steady hand of Zaslav now in command of more world-class media assets he can now deploy internationally, Discovery has gone from a small unscripted player to a scaled global behemoth across scripted, unscripted, and news content. Its an app that people can use just like a regular wallet to store their card details and information. Price as of February 28, 2023, 4:00 p.m. Now, after the merger is complete, we should look at the financials of the merged entity. 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. 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. The firm maintained its market perform rating on Warner Bros. Discovery (WBD -2.01%). After a financial scandal tarnished the Kinney brand, they became Warner Communications in 1972. What the Smartest Investors Know About Warner Bros. Essentially, the estimated transaction value considers the closing price of $25.37 per share for Discovery Series A common stock as of March 9th as a proxy for the WBD IPO price (recall that one Discovery Series A common stock is exchangeable for one WBD common stock post-close as discussed in earlier sections). The Motley Fool has a disclosure policy. Discovery Makes a Dramatic Strategic Shift, Up 57% and Climbing, This Stock Is Still a Bargain Buy in 2023. 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). Together, these adverse developments impacted Warner Bros. With the WarnerMedia spinoff fast approaching, AT&T (NYSE:T) has uploaded a series of press releases last week detailing how the transaction will take place. 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. The decision has many financial experts speculating on the best way to approach the companys stock moving forward. The streaming merger is the latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company. 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. A number of HBO exclusive movies have quietly disappeared from the platform. Discovery's outlook for the year. The Wall Street Journal this month reported that Warner Bros. 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. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. WBD was trading at $24.88 before markets closed for the holiday weekend. Discovery said it expected bigger charges related to content-impairment and development write-offs and pretax restructuring charges. 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. Discovery, with Discovery shareholders holding the rest. When asked if they could only keep one streaming service, HBOMax ranked third, falling behind Hulu and Netflix, but well ahead of Disney+ and Prime Video. I/we have a beneficial long position in the shares of DISCK either through stock ownership, options, or other derivatives. Prior to WBDs quarterly report announcement, Barrons reported that analysts at Goldman Sachs reinstated a buy rating and price target of $22 on Warner Bros. 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. Discovery. If you have an ad-blocker enabled you may be blocked from proceeding. Only about a quarter of the analysts rated the stock as a buy. Discovery has faced more cautious advertisers, ongoing cord-cutting, competition within streaming and upheaval created from the merger deal itself. Invest better with The Motley Fool. Revenue came in at $11 billion, compared with $3.19 billion in the prior-year quarter. 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+.. The streaming merger is the latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company. 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. It had been up as much as 9% in morning trading but has been in a SPX, I am a retail investor, with no formal training in investing. Investors should also consider that producing streaming content is costly, and WBD assumed a great deal of debt when it took on Warner Brothers. Discovery, which has no dividend. 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. Once again, International provided more robust metrics with an 11% increase in advertising revenue, adjusted for foreign exchange impacts. The Coke vs. Pepsi debate doesn't just apply to the supermarket the brands are also rivals in the stock market. Upon closing, Magallane, Inc. Spinco will merge with "Drake Subsidiary, Inc.", the wholly owned "merger subsidiary" of Discovery's to create WBD. Offers may be subject to change without notice. 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. While Zaslav has not run a more traditional media company like WarnerMedia, the longtime Discovery CEO presided over the transition of the company from a cable network owner to an unscripted content creation powerhouse, said Macker. Making the world smarter, happier, and richer. Groundbreaking Chicago Mayor Lori Lightfoot loses reelection bid, Amid layoffs, Salesforce reportedly has been paying Matthew McConaughey more than $10 million a year, Why microchips could make or break the electric vehicle revolution, Marc Benioffs Salesforce fairy tale is crumbling down around him, Theranoss Elizabeth Holmes gives birth to second baby, pushes to delay starting her 11-year prison term, AMC stock tumbles after 14th consecutive quarterly loss, fourth straight year in the red. Our analysis provides a deep dive on growth drivers present in the secular market to identify outperforming investments. 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. Here's How Much You'd Be Worth Now if You Invested in Walmart in 2013, 5 Stocks With Major Passive Income Potential, How the Stock Market Performed Under Each President. Author's Note: Thank you for reading my analysis. The streaming media and telecom worlds were shaken Monday, when AT&T (T -0.63%) announced it would be spinning off its WarnerMedia division and combining it with Discovery (DISCA) (DISCK). 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. Discovery, they discovered that the previous management had been overly optimistic with their projection of Warner Bros. prospects. Visit a quote page and your recently viewed tickers will be displayed here. You can click on the 'unsubscribe' link in the email at anytime. After all, there has been a more chaotic revolving door over in the HBO C-suite since the merger with AT&T, with lots of turnover and restructuring. What Is the Standard Deduction for People Over 65 in 2023? 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. Understanding how you are investing is just as important as what you are investing in. Making the world smarter, happier, and richer. The blended average of the combined WBD valuation range with and without synergies is about $102.2 billion to $153.8 billion. Market Realist is a registered trademark. 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. This array of content serves to attract and retain subscribers. Discovery, with Discovery shareholders holding the rest. Please. I own a house with my husband and mother. I wrote this article myself, and it expresses my own opinions. Chief Financial Officer Gunnar Wiedenfels, during Warner Bros. Discoverys To make the world smarter, happier, and richer. Copyright 2023 ComicBook.com. Subscribe for full access to The Hollywood Reporter. And given that Q1 performance and previously unplanned projects in sight, I currently estimate the WarnerMedia part of our profit baseline for 2022 will be around $500 million lower than what I had anticipated. There was an unknown error. That Discovery. I seek a degree of safety in my investments by. Among the reports that came out of the first week of Warner Bros. I have no business relationship with any company whose stock is mentioned in this article. The thinking is that this could lead to a surge in subs when the two services are combined. Discovery is now a buy, hold or sell. If you Jakub Porzycki / NurPhoto / Shutterstock.com. Please disable your ad-blocker and refresh. That same study revealed that when questioned regarding their level of satisfaction among SVOD services, HBOMax received the highest score. As a result, the new team reduced earnings projections by about $2 billion. Shop Pay is an innovative payment solution developed by Shopify. 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. The Motley Fool recommends Warner Bros. However, most of the analysts rate the stock as a hold or some equivalent. Since I require a discount in the share valuations of my investments, my ratings are generally very conservative. We will be a simpler, more focused company with the intent to become Americas best broadband provider.. 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. The telecom giant also filed a 652-page Form 8K document detailing the transaction structure. I have no business relationship with any company whose stock is mentioned in this article. Apr 11, 2022 1:58 PM EDT. In a filing in December, Warner Bros. Maximize your income with the worlds highest-quality dividend investments. AT&T shares fell in pre-market trading and were down 4.3 percent to $24.40 as of 7:45 a.m. 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. The Motley Fool has a disclosure policy. Make this your go-to guide to understanding stock charts. Discovery's share price when the new company began trading earlier this year. 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. Discovery stock. HBO Max and Discovery Plus will be merged into a single digital platform under Warner Bros. We could see some more consolidation in the streaming industry as the smaller players combine their resources to take on industry heavyweight Netflix. WBD currently trades for $18.88 a share. The final green light for the megadeal came at a special shareholder meeting held online; shareholders of AT&T, led by CEO John Stankey, do not need to vote on the combination. Last week, AT&T confirmed April 5th at market close as the record date for the stock dividend related to the WarnerMedia spinoff. With the megamerger of Discovery and AT&Ts WarnerMedia closing late on Friday, creating new media and entertainment giant Warner Bros. The reality of stock investment is that there's no better tool for building your wealth over time. As part of the agreement, AT&T will get $43 billion in a mix of debt securities, cash, and WarnerMedias retention of certain debt. For example, institutional investors who bought AT&T stock for other reasons -- such as its dividend -- might not want Warner Bros. ET. 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. Please note that I am in the process of planning a subscription service with Seeking Alpha's Marketplace. 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. Readers should consider this when weighing my buy/hold/sell recommendations. Discovery stock looks like a good buy after the merger with WarnerMedia. Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by Discovery. Is This the Best Streaming Stock for 2023? 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. Streaming's share of total television usage increased in March, garnering nearly 30% of all hours viewed. 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. With the 5G transition in full swing, the company can't afford to be distracted with the streaming media wars, paying down debt, and maintaining the dividend all at once. With over 40 individual picks yielding +7%, you can supercharge your retirement portfolio right away. These are high-margin services that AT&T needs to get right, and where it's up against stiff competition in the telecom space. Just a few years ago, the same team acquired and integrated Scripps Networks into Discovery. NEW YORK and DALLAS, April 8, 2022 Today Discovery, Inc. and AT&T Inc. * ( NYSE:T) announced that they have closed their transaction to combine the 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. net asset value under U.S. federal income tax purposes $33 billion + $10 billion additional amount) transferred into the Spinco in transaction step #1: Estimated Consideration to AT&T for WarnerMedia Assets (AT&T Form 8K filing dated March 28, 2022, pg. 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. I am a also value / buy and hold investor. Billy Duberstein owns shares of AT&T, Discovery (C shares), and Netflix. Warner Bros. That will simplify things a whole lot, both for the companies and their investors. The company posted a 5% growth in U.S. advertising and an 11% increase in distribution revenue due to Discovery+. They expected a subscriber count of around 96.33 million. *Average returns of all recommendations since inception. 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. The same group is repeating its act again, albeit on a bigger deal. Warner Bros. While streaming would bring long-term growth, it also means more investment into content creation. The spinoff and dividend cut is probably the right long-term move for AT&T, as it will offload some $43 billion in debt to the new WarnerMedia company. Discovery, Wall Street is turning its attention to the outlook for the new conglomerates stock that began trading on Monday under the ticker symbol WBD.. 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