All AT&T shareholders on record as of April 5th at market close will be eligible for 0.24 WBD shares for each share of AT&T share owned. 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. The strongest case for WBD is the massive supply of content associated with WarnerMedia. Readers should consider their own unique investment profile and consider seeking advice from an investment professional before making an investment decision. NFLX also held $6 billion in cash. Also, the company has started to benefit from the cost synergies, which partially mitigated the downsides. The European Commission, the executive body of the European Union, had approved the deal in December. Magallane, Inc. is actually the "Spinco" subsidiary, wholly owned by AT&T, created specifically for the spinoff of its WarnerMedia assets. 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. 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, just because it's probably the right move doesn't mean AT&T shareholders should be overjoyed. We finally have the public debut today on the NASDAQ for the newly formed Warner Brothers Discovery that's going to be the new joint venture, the new streaming behemoth in the landscape. A merger rarely goes without hiccups, so while the dip in Warner Bros. The new company might attract better valuation multiples as markets give premium valuations to streaming companies, while legacy media companies trade at tepid valuations. 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. The streaming merger is the latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company. That brings the companys net debt to around 4.5x EBITDA. 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. Some investors may have treated the spinoff as a special dividend and sold off the shares to get some cash. 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. Warner Bros. Sign up for our daily newsletter for the latest financial news and trending topics. Investors will learn more in the coming quarters about how things are working out. Learn More. The company reported nearly $450 million in next generation revenue, a 55% increase over the prior-year quarter. 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. 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. Additional disclosure: I have no formal training in investing. We will not launch any new markets for the time being. Bret Kenwell. All Rights Reserved. The Motley Fool owns shares of and recommends Netflix. 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. That sale is being blamed for the slow pace of renewals for some of The CW's shows, including the Warner Bros.-ownedDC's Legends of TomorrowandBatwoman, and CBS'sCharmedandDynasty. to the transaction, we have better refined our estimates. 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. I could be characterized as a safety first investor. The streaming merger is the latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company. The new entity will focus on streaming services. Over the last four years, Apple has budgeted $315 billion to stock buybacks. We feel really good about where we are.. One is a relatively high rate of churn. Earlier this year, the merger of AT&T 's ( T -0.57%) WarnerMedia with Discovery ( DISC.A) ( DISC.B) ( DISCK) was given the green light by U.S. regulators. Make this your go-to guide to understanding stock charts. Another massive streaming giant round the corner? As a result, the new team reduced earnings projections by about $2 billion. 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. Just a few years ago, the same team acquired and integrated Scripps Networks into Discovery. 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. It's worth noting that these forecasts were before Discoverys merger announcement. The Motley Fool has a disclosure policy. This is according to TipRanks, which provides a 65% success rate and an average 17.6% annual return for my articles. Upon completion of the transaction, AT&T shareholders will, together, own 71% equity interest in WBD, with Discovery shareholders owning the remainder 29%. We will not sort of chase aggressively behind subscriber growth. 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). Discovery Inc. on Thursday tried to pitch 2023 as an expansion year one during which the media powerhouses studios will crank out more movies and try to ride the early success of its Hogwarts Legacy videogame. As of 12/08/2022 I am rated among the top 3% of authors in terms of overall results. All Right Reserved. In other words, if an AT&T shareholder decides to sell an AT&T share under Ex-Distribution Trading between April 4th and the WBD transaction completion date, they will only be retaining rights to the WBD shares distributed to them as a result of their AT&T share ownership as of the record date (April 5th market close). 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. There is no doubt that WBD will possess a formidable content portfolio. 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. That will simplify things a whole lot, both for the companies and their investors. Warner Bros. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. Discovery's share price when the new company began trading earlier this year. 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. It has been awful time for investors in media company 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. WarnerMedias operating income declined 35% year-over-year. Since I require a discount in the share valuations of my investments, my ratings are generally very conservative. Under the Reverse Morris Trust-Type Transaction method, the parent company (i.e. Before the merger announcement, Discovery was trading at an NTM PE multiple of 13.2x, which looked undervalued. 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. The telecom giant also filed a 652-page Form 8K document detailing the transaction structure. In the process of merging AT&T at 71% and SPX, Discovery. 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. 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. 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. 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). Please. Subscribe for full access to The Hollywood Reporter. Discovery currently has 700 million shares outstanding, while 1.7 billion new shares will come to market as part of the transaction. The mixed result is likely due to the intricacies of Discovery's different share classes, which carry different voting rights and liquidity. Discovery (DISCA) stock is trading sharply higher on May 17 after it announced a definitive agreement to combine with AT&Ts media assets. Maximize your income with the worlds highest-quality dividend investments. The stock could be a long-term winner based on its the strong growth potential in the streaming industry. has been completed,direct to consumer (DTC)losses peaked in22 with a path to breakeven in24 and the cyclical headwinds should abate as macro conditions improve.. Read More About: AT&T Considering the intense competition in this space, I believe caution at this stage is warranted. For a time, it seemed like Warner was a big dog, buying up companies like DC Comics, Six Flags, and Lorimar. All relevant risks are not covered in this article. Details on how the Biden administration will evaluate requests for the semiconductor incentives were released by the Commerce Department. Get advice on achieving your financial goals and stay up to date on the day's top financial stories. And it will be available in 220 countries and 50 languages. At least give management a few quarters to execute their strategies. The transformation weve undergone over the past 18 months while delivering outstanding operational results has brought us to this point. I have no business relationship with any company whose stock is mentioned in this article. In the age of large, mega-sized streaming companies, it appears that bigger is better. A total of 26.26 million student loan borrowers have applied or were deemed automatically eligible for relief under President Joe Biden's student loan forgiveness program, and there are 16.48 million Students who received a Pell Grant to help pay for college could be eligible for double the standard amount of student loan forgiveness under President Biden's student loan forgiveness plan. Discovery stock was up 5% in midday trading on the stock market today, near 32.50. In a filing in December, Warner Bros. The blended average of the combined WBD valuation range with and without synergies is about $102.2 billion to $153.8 billion. Discovery, which has no dividend. Market Realist is a registered trademark. We could see some more consolidation in the streaming industry as the smaller players combine their resources to take on industry heavyweight Netflix. Warner bros bring sold to Discovery? 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. I am a graduate of the U.S Army Ranger school and a former member of the 1st Ranger Battalion and The Old Guard (U.S Army Honor Guard.) There is meaningful churn on HBO Max, much higher than the churn that we have seen. WBD currently trades for $18.88 a share. 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. The forward P/E for the company is 8.68x, and the 5-year PEG is 0.43x. 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. Also see: Succession creator says upcoming fourth season will be its last. I am not receiving compensation for it (other than from Seeking Alpha). 111). The Hollywood Reporter is a part of Penske Media Corporation. Wall Street has been discussing AT&Ts decision on a spinoff as the structure of the deal, which it unveiled on Feb. 1. AT&T stockholders will end up owning 71 percent of the new Warner Bros. The new streaming behemoth will have a huge library of 200,000-plus hours of content, from Warner Bros. Studios, HBO and MBO Max, The Turner channels (TNT, TBS, CNN), as well as Discovery's comprehensive portfolio of unscripted content. 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 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. 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. 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. 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