My primary focus is on dividend bearing stocks. 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. Discovery is now a buy, hold or sell. To make the world smarter, happier, and richer. To make the world smarter, happier, and richer. James Gunn Reveals New Superman, Batman Movies and More, Warner Bros. Considering the intense competition in this space, I believe caution at this stage is warranted. Discovery. The future of WarnerMedia was for a long time undecided until AT&T eventually divulged the details of a massive merger with Discovery. Networks jumped 7% to $1.93 billion while International Networks registered 25% growth to $1.23 billion. Stock Market Holidays 2023: Is the Stock Market Open Today? To balance that debt, at the end of 2021, WBD had a bit over $4.1 billion in cash. Discoverys stock was down 2.9 percent at $27.10 at that time. The Wall Street Journal this month reported that Warner Bros. I wrote this article myself, and it expresses my own opinions. distribution of Spinco common stock to eligible AT&T shareholders as of record date), which occurs prior to completion of the WBD merger. 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". That's good news for a company that's heavily leveraged, after Discovery went deep into debt to afford to $43 billion price tag for Warners. we also think that one of the big opportunities here is going to be churn reduction. 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. See: 9 Bills You Should Never Put on AutopayFind: 7 Things You Should Never Do When Planning For Retirement. Now consider that the portfolio of Discovery+ will be added to that of HBOMax, and you have the makings of a content king. Also, the company has started to benefit from the cost synergies, which partially mitigated the downsides. Also see: Succession creator says upcoming fourth season will be its last. Only about a quarter of the analysts rated the stock as a buy. Discovery's share price when the new company began trading earlier this year. Our focus is to invest in content and platforms that extend the life and return of our global IP, and position us to drive greater returns out of each dollar of content spend than our peers and to ultimately drive free cash flow. 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). Overall, the company revised adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to between $9 billion and $9.5 billion for 2022, down from the $10 billion forecast before the merger. Due diligence should be exercised and readers should engage in additional research and analysis before making their own investment decision. 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. The company posted FCF of $238 million, and operating expenses decreased 8% to $907 million. I could be characterized as a safety first investor. 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'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. we will continue to be very thoughtful about our spend. The blended average of the combined WBD valuation range with and without synergies is about $102.2 billion to $153.8 billion. 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. I/we have a beneficial long position in the shares of DISCK either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. Please. 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. 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. with the stock up over 60% year to date, reversing losses from 2022 -2.01% Bolstered by strong international results, WBD increased total revenue by 13% to $3.16 billion. Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by Discovery. After last years messy mega-merger, executives at Warner Bros. takes the proverbial cake, with a stock price that plummeted over 65%. We will not launch any new markets for the time being. While I still own a small token amount of AT&T, my allocation to Discovery is much larger, and Discovery looks to have more intriguing post-deal upside. And right or wrong, management has made a decision to invest a lot of the incoming funds into a number of investment initiatives. 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. Based on the latest update per disclosures in AT&T's 8K filing dated March 28th, the estimated value of the transaction is approximately $83.4 billion. Just a few years ago, the same team acquired and integrated Scripps Networks into Discovery. 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Erik Khalitov/iStock Unreleased via Getty Images. $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. 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". 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. 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". Magallane, Inc. is actually the "Spinco" subsidiary, wholly owned by AT&T, created specifically for the spinoff of its WarnerMedia assets. 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. The merger with Discovery has the above-stated benefits for AT&T, including significantly reduced debt. 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. 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. Here's Why AT&T Needs to Be on Your Radar Right Now, Best Dividend Stock to Buy: AT&T vs. Ford vs. Intel, 2 Growth Stocks That Can Turn $250,000 Into $1 Million by 2030, Billionaire Investor Bill Ackman Is Raking In $97 Million In Annual Dividend Income From These 2 Stocks, 1 Bargain-Basement Warren Buffett Stock Down 78% to Buy Before It Starts Soaring, 3 No-Brainer Stocks to Buy With $50 Right Now, Join Over Half a Million Premium Members And Get More In-Depth Stock Guidance and Research, Copyright, Trademark and Patent Information. ET. Hogwarts Legacy launched on Feb. 10. 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 (DISCA) stock is trading sharply higher on May 17 after it announced a definitive agreement to combine with AT&Ts media assets. 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. Discovery. Discovery merger, AT&T and Discovery Communications shareholders have decisions to make. Last week, AT&T confirmed April 5th at market close as the record date for the stock dividend related to the WarnerMedia spinoff. (I update this score on at least a quarterly basis for readers.). Discovery stock was up 5% in midday trading on the stock market today, near 32.50. 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. Apple, one of the largest tech giants in the world, designs and manufactures cell phones, laptops, and smart devices. At least both companies won't be distracted with an adjacent industry anymore. Discovery Makes a Dramatic Strategic Shift, Up 57% and Climbing, This Stock Is Still a Bargain Buy in 2023. Since I require a discount in the share valuations of my investments, my ratings are generally very conservative. 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 stock at a time when those shares dont fully reflect the value that we see long-term for the combined company.. However, Discovery is an expert in international content, with a presence across 220 markets, and expertise adapting its unscripted content to many other languages. 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 2025, while expenses are expected to accelerate. 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. 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. Is this happening to you frequently? Details on how the Biden administration will evaluate requests for the semiconductor incentives were released by the Commerce Department. The Motley Fool has a disclosure policy. We will be a simpler, more focused company with the intent to become Americas best broadband provider.. 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. Meanwhile, investors will receive a lower dividend while they wait for the company to execute and catch up. There are many ways to grow your personal wealth and diversify your portfolio. 16 Million Approved for Biden Student Loan Forgiveness Plan Will Supreme Court Uphold? Discovery (NASDAQ: WBD) when the stock went public last April. Discovery currently has 700 million shares outstanding, while 1.7 billion new shares will come to market as part of the transaction. 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. 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. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. ET, Why AT&T, Fortinet, and TSMC Are No-Brainer Buys Right Now, This Dividend Stock Is a Safe Bet Regardless of Market Conditions. Discovery to report a loss of 35 cents a share, on revenue of $11.2 billion. However, most of the analysts rate the stock as a hold or some equivalent. Author's Note: Thank you for reading my analysis. With the megamerger of Discovery and AT&Ts WarnerMedia closing late on Friday, creating new media and entertainment giant Warner Bros. WBD Transaction Structure (AT&T 8K filing, with annotations by Author. Looking for a helping hand in the market? My valuation requirements, combined with the high quality companies that I often highlight mean many stocks I rate as a hold perform well over the long term. WBD was trading at $24.88 before markets closed for the holiday weekend. Discovery shareholders would own 29 percent of the new entity, while AT&T shareholders would hold a 71 percent stake in the new company. Discovery ("WBD"). Warner Bros. Copyright 2023 MarketWatch, Inc. All rights reserved. Copyright 2023 Market Realist. 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. 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. What the Smartest Investors Know About Warner Bros. Please try again later. 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 may need to fund losses for many years to build a sizable customer base. Zaslav, in the companys earnings release, said that major restructuring decisions were behind us. However, Warner Bros. AT&Ts WarnerMedia unit and Discovery Inc said on Friday that the two firms have completed the merger. That compares to $140 million in net income and EPS of $0.21 in the comparable quarter. The new management is trying hard to turn around the ship. The Motley Fool recommends Discovery (C shares). By comparison, the S&P 500 index Ahead of the Warner Bros. Another massive streaming giant round the corner? 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. AT&T stockholders will end up owning 71 percent of the new Warner Bros. WBD was 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 Warner Bros. When you buy stock, you're essentially buying a tiny piece of the company it represents. Discovery (WBD -2.01%). The resultant company, Warner Bros. Boutique investment research shop providing professional coverage on disruptive thematic equities. Warner Bros. to create Warner Bros. I have no business relationship with any company whose stock is mentioned in this article. AT&T Regular Way Trading - AT&T shareholders can engage in "Regular Way Trading" during the two-way trading period if they wish to sell "both the share of AT&T common stock and the right to receive shares of WBD common stock in the transaction". The strongest case for WBD is the massive supply of content associated with WarnerMedia. Shop Pay is an innovative payment solution developed by Shopify. Over the last four years, Apple has budgeted $315 billion to stock buybacks. Chief Financial Officer Gunnar Wiedenfels, during Warner Bros. Discoverys Cost basis and return based on previous market day close. WarnerMedias operating income declined 35% year-over-year. At least give management a few quarters to execute their strategies. All Rights Reserved. I am a retired law enforcement officer. Investors had high hopes for Warner Bros. *Average returns of all recommendations since inception. Discovery CEO David Zaslav The companies are forecasting a free cash flow conversion ratio of 60 percent, which looks very healthy. The stock could be a long-term winner based on its the strong growth potential in the streaming industry. However, I admit I have reservations regarding the companys debt load and financial prowess. Ahead of the fourth-quarter earnings, some analysts said the results would present an opportunity for management to reframe the companys path forward. Apple, one of the Warner Bros. at & T and discovery said... The strong growth potential in the comparable quarter EPS of $ 0.21 in the comparable quarter is about $ billion! Details of a content king with an adjacent industry anymore hopes for Warner Bros. takes the proverbial cake with. 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