Erik Khalitov/iStock Unreleased via Getty Images. If you have an ad-blocker enabled you may be blocked from proceeding. Warner Bros. Step 4 Issuance of Spinco Common Stock - Prior to AT&T's distribution of rights to shares of WBD common stock to existing AT&T shareholders as of record date, the Magallanes, Inc. Spinco will issue to AT&T a number of shares equivalent to total AT&T shares outstanding, which will later be "exchanged for shares of WBD common stock to be issued to [Spinco shareholders]". The firm maintained its market perform rating on Warner Bros. HBO Max and Discovery Plus will be merged into a single digital platform under Warner Bros. 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. 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. SPX, 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. ), WBD Transaction Structure (AT&T 8K Filing, with annotations by Author), WBD Transaction Structure (AT&T 8K filing, with annotations by Author). On 7.14 billion current shares, that's about $1.18 per share, just a little more than half the $2.18 payout today. My primary focus is on dividend bearing stocks. The management team has plenty of experience executing mergers. The decision has many financial experts speculating on the best way to approach the companys stock moving forward. In early Monday trading, the shares of the 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.) 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. Latest Technology & Communications News and Updates. 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. Market Realist is a registered trademark. 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Because of this gap period, AT&T will begin "two-way trading" until the WBD merger's completion. Get advice on achieving your financial goals and stay up to date on the day's top financial stories. Now, the record date is not the same as the transaction completion date. At least both companies won't be distracted with an adjacent industry anymore. However, the media merger has thus far been a That same study revealed that when questioned regarding their level of satisfaction among SVOD services, HBOMax received the highest score. For example, institutional investors who bought AT&T stock for other reasons -- such as its dividend -- might not want Warner Bros. Discovery, which has no dividend. Essentially, AT&T will transfer 100% of its owned WarnerMedia assets into the Magallane, Inc. Spinco prior to the completion of the transaction. I seek a degree of safety in my investments by. The reality of stock investment is that there's no better tool for building your wealth over time. AT&T announced last week that April 5th at market close will be the record date for AT&T shareholders eligible for the special stock dividend pertaining to the upcoming WBD transaction. Poorer than expected performance of late from WarnerMedia was also highlighted. All Rights Reserved. Discovery ("WBD"). 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. Discovery stock was up 5% in midday trading on the stock market today, near 32.50. WBD quickly axed CNN+ shortly after the April merger (although some of CNNs programming can be found on Discovery) and just this week confirmed that two films slated for an HBO Max-only release the anticipated Batgirl and the animated Scoob! we also think that one of the big opportunities here is going to be churn reduction. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Apple, Fortinet, Intel, Qualcomm, Taiwan Semiconductor Manufacturing, and Warner Bros. His clients may own shares of the companies mentioned. Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by Discovery. 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. Together, these adverse developments impacted Warner Bros. Echoing our thoughts from the previous coverage, we believe the fast-approaching WBD spinoff will be a promising play for participating AT&T investors. In 2000, internet service provider America Online bought Time-Warner, Inc. to form AOL Time Warner, but when the dot-com bubble burst, that partnership dissolved quickly. Of that, $15 billion will be generated by direct-to-consumer services. 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. Discovery's outlook for the year. Warner Bros. I could be characterized as a safety first investor. The Motley Fool recommends Discovery (C shares). Management discussed a number of concerns to be addressed now that the merger is complete. Essentially, the issued Spinco common stocks represent the rights to shares of WBD common stock distributed to existing AT&T shareholders as of record date. Founded by four brothers in 1923, Warner Bros. is a giant in the film industry, but has changed hands more time than most fans can count. 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%. Offers may be subject to change without notice. Additionally, the two companies just initiated their international expansions. 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. A merger rarely goes without hiccups, so while the dip in Warner Bros. He called out this months blowout debut of the game Hogwarts Legacy, and announced a new deal for multiple Lord of the Rings movies further out. 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. 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. One is a relatively high rate of churn. Last week, AT&T confirmed April 5th at market close as the record date for the stock dividend related to the WarnerMedia spinoff. The streaming space is crowded, and Warner Bros. Since I require a discount in the share valuations of my investments, my ratings are generally very conservative. Discovery has over 15 million paying streaming subscribers globally, while HBO and HBO Max reportedly have 64 million subscribers globally. 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. Discovery is now a buy, hold or sell. Warner Bros. The companies are forecasting a free cash flow conversion ratio of 60 percent, which looks very healthy. 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. Disclosure: I/we have a beneficial long position in the shares of DISCK either through stock ownership, options, or other derivatives. The companies are also forecasting annual cost synergies of $3 billion. The Wall Street Journal this month reported that Warner Bros. After a financial scandal tarnished the Kinney brand, they became Warner Communications in 1972. If you have taken a look at AT&T's latest 8K filling dated March 28th, you would notice that the filing registrant is "Magallanes, Inc.". 2023 GOBankingRates. Advertiser Disclosure: Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. 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. 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, will start But if I take a step back here and just look at, call it, the past 15 months for WarnerMedia sort of as a carve out-group, we're looking at more than $40 billion of revenue and really virtually no free cash flow. To put that in perspective, Disney+ has over 103 million subscribers, while Netflix has around 208 million subscribers. And right or wrong, management has made a decision to invest a lot of the incoming funds into a number of investment initiatives. Investors might want to take a more patient approach in dealing with the company. 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. If so, how? Now consider that the portfolio of Discovery+ will be added to that of HBOMax, and you have the makings of a content king. Discovery stock traded down more than 4% in early after-hours trading Thursday after fourth-quarter revenue badly missed analyst estimates.. Fourth-quarter revenue came in at $11.1 billion The company posted a 5% growth in U.S. advertising and an 11% increase in distribution revenue due to Discovery+. 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. Billy Duberstein owns shares of AT&T, Discovery (C shares), and Netflix. On Friday, Discovery shareholders formally approved the mega-combination of the factual and lifestyle media powerhouse Discovery with AT&Ts entertainment arm. The streaming merger is the latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company. 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. 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. Furthermore, management estimates less than half of discovery+ subscribers subscribe to HBO Max. See: 9 Bills You Should Never Put on AutopayFind: 7 Things You Should Never Do When Planning For Retirement. Wall Street will soon take note of the news and analysts might revise their ratings. Another massive streaming giant round the corner? 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. 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). In February, the merger received approval from the U.S. Department of Justice, the key regulatory hurdle for the merger. While streaming would bring long-term growth, it also means more investment into content creation. Discovery's first earnings report post-merger might also have added fuel to the fire. Erik Khalitov/iStock Unreleased via Getty Images. Moreover, the merger resulted in WBD assuming a great deal of debt. We are the largest income investor and retiree community on Seeking Alpha with over 4600 members actively working together to make amazing retirements happen. 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. It had been up as much as 9% in morning trading but has been in a However, I admit I have reservations regarding the companys debt load and financial prowess. It has been awful time for investors in media company Warner Bros. Discovery CEO David Zaslav will run the merged giant, with Discovery CFO Gunnar Wiedenfels serving as the new companys CFO. 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". Discovery stock is a bargain buy 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. 111). This increased its subscriber numbers to 76.8 million. 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. Discovery currently has 700 million shares outstanding, while 1.7 billion new shares will come to market as part of the transaction. AT&T's shares were down 2.7% on the day, while Discovery's B and C shares were up strongly, even as its A shares went down. 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%. Step 3 Special Cash Payment - 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 make a "Special Cash Payment" to AT&T 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. 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. Please. share conversion ratios, estimated WBD shares outstanding post-close, recent Discovery and AT&T closing share price, peer comps, etc.) Copyright 2023 ComicBook.com. ET, Why AT&T, Fortinet, and TSMC Are No-Brainer Buys Right Now, This Dividend Stock Is a Safe Bet Regardless of Market Conditions. All relevant risks are not covered in this article. Making the world smarter, happier, and richer. I have no business relationship with any company whose stock is mentioned in this article. 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. Magallane, Inc. is actually the "Spinco" subsidiary, wholly owned by AT&T, created specifically for the spinoff of its WarnerMedia assets. NFLX has a projected net debt-to-adjusted EBITDA ratio of 1.3 for 2022. What Is the Standard Deduction for People Over 65 in 2023? There was an unknown error. Asked about the risk of future dividend cuts, Desroches said that the dividend is not only safe, but its size gives the company financial flexibility. The Motley Fool has a disclosure policy. The Motley Fool recommends Warner Bros. The company the result of a merger last year between AT&Ts WarnerMedia and Discovery reported a fourth-quarter net loss of $2.08 billion, or 86 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. May 17, 2021 2:01 PM EDT. We will not sort of chase aggressively behind subscriber growth. AT&T stockholders will end up owning 71 percent of the new Warner Bros. 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Discovery to report a loss of 35 cents a share, on revenue of $11.2 billion. 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. It's worth noting that these forecasts were before Discoverys merger announcement. See which stock you should consider. Disclosure: I/we have a beneficial long position in the shares of AMZN AAPL either through stock ownership, options, or other derivatives. Investors will learn more in the coming quarters about how things are working out. 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). Just a few years ago, the same team acquired and integrated Scripps Networks into Discovery. has fallen 5.8% over that period. The thinly traded shares (ticker: DISCB) that are 95% owned by media mogul and Discovery board member John Malone traded Tuesday at $68.88, down $1.02. The streaming merger is the latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company. As of 12/08/2022 I am rated among the top 3% of authors in terms of overall results. In the process of merging AT&T at 71% and pertaining to the WarnerMedia spinoff, the telecom giant also submitted a, 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. ) My sister has always struggled with money and drugs. 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.. 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. Under the Reverse Morris Trust-Type Transaction method, the parent company (i.e. 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. At the time of the WarnerMedia and Discovery merger in April, Zaslav promised to find $3 billion in savings from the deal, per NBC. To make the world smarter, happier, and richer. to the transaction, we have better refined our estimates. 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". 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. 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. 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. Author's Note: Thank you for reading my analysis. NFLX also held $6 billion in cash. The distributed Spinco common stocks can be exchanged for 0.24 WBD common stocks post-close based on the stock dividend exchange ratio previously discussed. 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. 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 posted fourth-quarter 2022 earnings on Feb. 23, with revenue of $11.01 billion decreasing Is This the Best Streaming Stock for 2023? We will not launch any new markets for the time being. 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. Zaslav, in the companys earnings release, said that major restructuring decisions were behind us. However, Warner Bros. The key regulatory hurdle for the time being Bills you Should Never put on AutopayFind: 7 Things you Never... Take a more patient approach in dealing with the company launch any new markets for company... This site are from advertisers from which this website receives compensation for being listed here with and... 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