Readers should consider this when weighing my buy/hold/sell recommendations. Cost basis and return based on previous market day close. Year-to-date, Warner Bros. If you bought shares of the S&P 500 ETF SPY as 2022 dawned, you are down around 10%. AT&Ts WarnerMedia unit and Discovery Inc said on Friday that the two firms have completed the merger. 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. Chief Financial Officer Gunnar Wiedenfels, during Warner Bros. Discoverys 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. Discovery stock at a time when those shares dont fully reflect the value that we see long-term for the combined company.. 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. 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. David has covered a wide variety of financial and lifestyle topics for numerous publications and has experience copywriting for the retail industry. Invest better with The Motley Fool. You can click on the 'unsubscribe' link in the email at anytime. to create Warner Bros. Warner Bros. 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. 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. 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. His clients may own shares of the companies mentioned. What the Smartest Investors Know About Warner Bros. Sign up for our daily newsletter for the latest financial news and trending topics. There was an unknown error. Discovery, Inc. Erik Khalitov/iStock Unreleased via Getty Images. 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 streaming merger is the latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company. Following the merger early last month, WBD ranks as the number-three player in the U.S. video streaming business behind Netflix and Disney. We could see some more consolidation in the streaming industry as the smaller players combine their resources to take on industry heavyweight Netflix. 16 Million Approved for Biden Student Loan Forgiveness Plan Will Supreme Court Uphold? -0.30% All Rights Reserved. Among the reports that came out of the first week of Warner Bros. If you Jakub Porzycki / NurPhoto / Shutterstock.com. Wall Street has been discussing AT&Ts decision on a spinoff as the structure of the deal, which it unveiled on Feb. 1. Warner Bros. On the closing date of the transaction, anticipated to be in April, AT&T shareholders will receive, on a tax-free basis, an estimated 0.24 shares of stock in Q1 operating profit and cash flow for WarnerMedia were clearly below my expectations. Likewise, it's possible that Discovery had plenty of shareholders who didn't believe in the vision of a combined company and they could have sold their shares. Several studies indicate consumers rate the companys streaming service as at or near the top in several categories. Warner Bros. -2.01% 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. The Motley Fool has a disclosure policy. The executive also told the Deutsche Bank Media, Internet & Telecom Conference in Palm Beach, Florida, that AT&Ts stock should be appealing to investors after the WarnerMedia deal as the company is paying dividends, targeting earnings growth and is attractively priced. I wrote this article myself, and it expresses my own opinions. 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. The potential synergies and economies of scale looked to position the combined company well to compete in the media and entertainment industry. Latest Technology & Communications News and Updates. The company posted a 5% growth in U.S. advertising and an 11% increase in distribution revenue due to Discovery+. 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. Discovery stock. Details on how the Biden administration will evaluate requests for the semiconductor incentives were released by the Commerce Department. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Together, these adverse developments impacted Warner Bros. HBO Max and Discovery Plus will be merged into a single digital platform under Warner Bros. 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. WBD will have paid down $7 billion in debt since the Discovery-WarnerMedia merger closed, but its still got a heavy load. 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. Warner Bros. Discovery may need to fund losses for many years to build a sizable customer base. Learn More. 111). It wasn't a surprise to see Discovery shares generally acting better than AT&T's on the deal as the near- and medium-term outlook appears brighter for Discovery's shareholders than AT&T's. 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. Discovery Communications and its three share classes will no longer exist as the company, unlike AT&T, will fully be merged into Warner Bros. Discoverys stock was down 2.9 percent at $27.10 at that time. My primary focus is on dividend bearing stocks. These offers do not represent all deposit accounts available. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). 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. 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. They expected a subscriber count of around 96.33 million. 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! Only about a quarter of the analysts rated the stock as a buy. ET. Sign up for THR news straight to your inbox every day. 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 service will allow you to follow my model portfolio, interact with me directly, and participate in chat rooms with other subscribers. Shop Pay is an innovative payment solution developed by Shopify. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Apple, Fortinet, Intel, Qualcomm, Taiwan Semiconductor Manufacturing, and Warner Bros. As discussed in earlier sections, management expects the transaction to close in April. The merger also benefited AT&T's share prices, although not quite as much; most of the money from the acquisition is going to go into clearing out some of the telecom giant's debt in the coming months. But it said that the ongoing reorganization, expected to be largely complete by the end of next year, could result in additional impairments above the revised estimates.. 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 As discussed in detail in our last coverage, AT&T will spinoff 100% of its current interest in WarnerMedia post-close. I have no business relationship with any company whose stock is mentioned in this article. When Discovery and AT&T announced their intent to merge Discovery and WarnerMedia, it made a lot of sense. Under the terms of the deal, which is structured as an all-stock transaction, AT&T would receive $43 billion in cash and debt with its shareholders controlling 71% of I am not receiving compensation for it (other than from Seeking Alpha). 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. SPX, I have approximately 20 years experience as a retail investor. 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