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. However, Discovery is an expert in international content, with a presence across 220 markets, and expertise adapting its unscripted content to many other languages. Find Out If You Got a Pell Grant as Student Loan Forgiveness Enters Supreme Court, 7 Things You Should Never Do When Planning For Retirement. The resultant company, Warner Bros. In the merger presentation, AT&T said it will pay out about 40% to 43% of free cash flow as its dividend, while giving a $20 billion-plus estimate for free cash flow And many AT&T investors might have decided to sell quickly for reasons not totally related to how well the new business will do. Warner Bros. to create Warner Bros. 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. *Average returns of all recommendations since inception. 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's share price when the new company began trading earlier this year. Zaslav hasnt been shy in making changes that align with the Warner Bros. I am a retail investor, with no formal training in investing. A merger rarely goes without hiccups, so while the dip in Warner Bros. 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. Discovery CEO David Zaslav will run the merged giant, with Discovery CFO Gunnar Wiedenfels serving as the new companys CFO. Is this happening to you frequently? If you have an ad-blocker enabled you may be blocked from proceeding. However, the media merger has thus far been a What Is the Standard Deduction for People Over 65 in 2023? The Coke vs. Pepsi debate doesn't just apply to the supermarket the brands are also rivals in the stock market. Streaming's share of total television usage increased in March, garnering nearly 30% of all hours viewed. 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 are the key levels for Here is a stat that might surprise many readers: every stock listed above has underperformed the S&P 500 over the last three years by a wide margin. Just a few years ago, the same team acquired and integrated Scripps Networks into Discovery. Since the merger was structured so that AT&T would spin off its holding of WarnerMedia and then merge the company with Discovery, AT&T investors got shares of the new company without doing anything. Discovery currently has 700 million shares outstanding, while 1.7 billion new shares will come to market as part of the transaction. 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. Warner Bros. 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". Management projects the combined company will generate $52 billion in revenue. ), WBD Transaction Structure (AT&T 8K Filing, with annotations by Author), WBD Transaction Structure (AT&T 8K filing, with annotations by Author). 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. AT&T and Discovery on Monday announced that they will merge their media assets in a megadeal that creates a stronger rival to Walt Disney and Netflix amid global There are many ways to grow your personal wealth and diversify your portfolio. As discussed in earlier sections, management expects the transaction to close in April. Sign up for our daily newsletter for the latest financial news and trending topics. It had been up as much as 9% in morning trading but has been in a To make the world smarter, happier, and richer. If you Jakub Porzycki / NurPhoto / Shutterstock.com. Discovery (NASDAQ: WBD) when the stock went public last April. Discovery, will start My primary focus is on dividend bearing stocks. takes the proverbial cake, with a stock price that plummeted over 65%. 2023 GOBankingRates. Market Realist is a registered trademark. 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. Trading AT&T and Discovery After $43 Billion Media Merger AT&T and Discovery have come to terms on a $43 billion media deal. People may receive compensation for some links to products and services on this website. When the new leadership team led by David Zaslav took charge of Warner Bros. What's been going on and is now the time to sell out of the stock? These offers do not represent all deposit accounts available. Bret Kenwell. The European Commission, the executive body of the European Union, had approved the deal in December. Discovery have tumbled 45.2% over the past 12 months. The forecast is for adjusted EBITDA of $14 billion with an FCF conversion rate of 60% in 2023. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. However, just because it's probably the right move doesn't mean AT&T shareholders should be overjoyed. 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, with Discovery shareholders holding the rest. 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. Its an app that people can use just like a regular wallet to store their card details and information. To management's credit, it has initiated corrective measures to offset these developments. The idea is that Warners has not been fully capitalizing on the brand's potential. 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. 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. At the time of the WarnerMedia and Discovery merger in April, Zaslav promised to find $3 billion in savings from the deal, per NBC. Investors had high hopes for Warner Bros. HBO Max and Discovery Plus will be merged into a single digital platform under Warner Bros. 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 may need to fund losses for many years to build a sizable customer base. Desroches mentioned that Discovery currently has 700 million shares outstanding, while 1.7 billion new shares will come to market as part of the transaction. These offers do not represent all available deposit, investment, loan or credit products. Making the world smarter, happier, and richer. All articles are my personal perspective on a given prospective investment and should not be considered as investment advice. 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. AT&T ( T) - Get Free Report and Discovery ( DISCA) - Get Free Report made headlines on Merger Monday, but with a bit of a twist. 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 Lawrence Nga has no position in any of the stocks mentioned. 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. Upon closing, Magallane, Inc. Spinco will merge with "Drake Subsidiary, Inc.", the wholly owned "merger subsidiary" of Discovery's to create WBD. At the end of 2021, the pro forma debt for WBD was over $56 billion. 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.. ET. Revenue came in at $11 billion, compared with $3.19 billion in the prior-year quarter. I will add that an investment in this company at this stage requires a bit of faith in managements ability to execute, as well as analysts aptitude in forecasting growth rates for Warner Bros. Discovery Communications and its three share classes will no longer exist as the company, unlike AT&T, will fully be merged into Warner Bros. *Average returns of all recommendations since inception. Discovery was word that DC could be restructured. Discovery stock was up 5% in midday trading on the stock market today, near 32.50. WBD currently trades for $18.88 a share. I wrote this article myself, and it expresses my own opinions. It's worth noting that these forecasts were before Discoverys merger announcement. Discovery shareholders would own 29 percent of the new entity, while AT&T shareholders would hold a 71 percent stake in the new company. Is DISCA stock a good buy after the AT&T merger news? 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 Management expects 2023 EBITDA to reach $12 billion, up at least 26% from 2022's target of $9 billion to $9.5 billion. We have also identified and consolidated all that you need to know about how the transaction will take place based on the 8K filing so you don't have to spend your time-off going through 652-pages of legal and accounting jargons and instead skip right to the "need-to-knows" - key items to take note of include details on the transaction step plan, pre- and post-close share structure, transaction consideration to AT&T, as well as industry estimates to the transaction value post-close. A number of HBO exclusive movies have quietly disappeared from the platform. 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. All rights reserved. on companies with competitive advantages and strong balance sheets. Copyright 2023 ComicBook.com. 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 am not receiving compensation for it (other than from Seeking Alpha). Under the terms of the deal, WarnerMedia retained $43 billion in debt. And right or wrong, management has made a decision to invest a lot of the incoming funds into a number of investment initiatives. WBD Transaction Structure (AT&T 8K filing, with annotations by Author. In an effort to shore up the bottom line, the company has cut jobs and content including CNN+ and a Batgirl film set for HBO Max. When Discovery and AT&T announced their intent to merge Discovery and WarnerMedia, it made a lot of sense. have both fallen around 25%, and Netflix (. ) 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%. Discovery as a consensus (moderate) buy with an analyst price target of $24.79. Warner bros bring sold to Discovery? Discovery stock is a bargain buy Warner Bros. WBD was trading at $24.88 before markets closed for the holiday weekend. In our last coverage on the upcoming WBD transaction and its implications for AT&T post-close, we had provided a detailed estimate on WBD's upside potential attributable to AT&T shareholders post-close. 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. The Motley Fool has a disclosure policy. 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. Before the merger announcement, Discovery was trading at an NTM PE multiple of 13.2x, which looked undervalued. 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. we will continue to be very thoughtful about our spend. Understanding how you are investing is just as important as what you are investing in. Revenue from U.S. Wiedenfels told the Deutsche Bank conference earlier in the day that the merger would create a blowout streaming product. Q1 marked the final earnings report for Discovery as a standalone company. 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". Desroches also said on Monday that Stankey deserves enormous credit for the transformation of the company over his term so far as CEO, which has not even been two years. 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. Offers may be subject to change without notice. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. At the time Discovery, Inc. 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, they discovered that the previous management had been overly optimistic with their projection of Warner Bros. prospects. 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 transaction will take place over seven detailed steps, and will likely close within the next two weeks, consistent with the transaction plan stipulated in the March 28th 8K filing as well as management's intention to close the deal within April. AT&T has applied an exchange ratio of 2.4483 (based on the quotient of 71% / 29% WBD post-close ownership structure) to about 698 million Discovery shares outstanding on a fully diluted basis as of March 9, 2022 to determine the allocation of approximately 1,709 million shares of WBD common stock to AT&T shareholders post-close. 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. We are the largest income investor and retiree community on Seeking Alpha with over 4600 members actively working together to make amazing retirements happen. -0.30% 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. Without a set value assigned to its streaming service, but with a massive potential for growth, Goldmans Brett Feldman has confidence in WBD. Members of High Dividend Opportunities get exclusive ideas and guidance to navigate any climate. ET. Invest better with The Motley Fool. One is a relatively high rate of churn. The management team has plenty of experience executing mergers. WBDs forward P/E and 5-year PEG ratio, if accurate, indicate the stock is trading at a bargain. Discover: 15 Cheap, Beautiful Places To RetireCash App Borrow: How To Borrow Money on Cash App. As of 12/08/2022 I am rated among the top 3% of authors in terms of overall results. Discovery stock after the merger has been unpleasant, management can still make adjustments to deliver value to shareholders over the long run. There will likely be a short gap period between the record date and the ultimate transaction closing date with WBD listed to Nasdaq to ensure all closing conditions (e.g. 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. If so, how? Due diligence should be exercised and readers should engage in additional research and analysis before making their own investment decision. Consequently, there could be significant overseas subscribers added. 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. Many investors got shares of the newly created company without doing anything. 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. $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. They added that advertising trends in January appeared to have improved from December. 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.. The consensus 12-month price target of the five analysts rating the stock is $37.25. 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. 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. They expected a subscriber count of around 96.33 million. 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. 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). Stock Market Holidays 2023: Is the Stock Market Open Today? When you buy stock, you're essentially buying a tiny piece of the company it represents. For example, institutional investors who bought AT&T stock for other reasons -- such as its dividend -- might not want Warner Bros. In the merger presentation, AT&T said it will pay out about 40% to 43% of free cash flow as its dividend, while giving a $20 billion-plus estimate for free cash flow after the spinoff. Shop Pay is an innovative payment solution developed by Shopify. 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.) Youre reading a free article with opinions that may differ from The Motley Fools Premium Investing Services. As of Aug. 5, MarketBeat lists 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). There is no doubt that WBD will possess a formidable content portfolio. AT&T) wishing to divest a subsidiary (i.e. Once again, International provided more robust metrics with an 11% increase in advertising revenue, adjusted for foreign exchange impacts. Read More About: AT&T Additional disclosure: I have no formal training in investing. 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). 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. Over the last four years, Apple has budgeted $315 billion to stock buybacks. 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. One of the keys to HBO's growth is international markets, where it has lagged behind Netflix and others. Discovery's Stock, 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, Motley Fool Issues Rare All In Buy Alert, Copyright, Trademark and Patent Information. Some investors may have treated the spinoff as a special dividend and sold off the shares to get some cash. As part of the agreement, AT&T will get 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. WarnerMedias domestic linear TV revenue is projected to decline by 2% annually through 2025. If content is king, an argument can be made that WBD takes the crown. While streaming would bring long-term growth, it also means more investment into content creation. 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 AMZN AAPL either through stock ownership, options, or other derivatives. Shares of 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 The potential synergies and economies of scale looked to position the combined company well to compete in the media and entertainment industry. Now, after the merger is complete, we should look at the financials of the merged entity. 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. I have no business relationship with any company whose stock is mentioned in this article. NFLX also held $6 billion in cash. Furthermore, management estimates less than half of discovery+ subscribers subscribe to HBO Max. Year-to-date, Warner Bros. 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. Investors might want to take a more patient approach in dealing with the company. AT&Ts WarnerMedia unit and Discovery Inc said on Friday that the two firms have completed the merger. Is This the Best Streaming Stock for 2023? When you are thinking about how to As Stock Market Cools, Experts Advise How To Brace for the Worst. David Nadelle is a freelance editor and writer based in Ottawa, Canada. Discovery stock. 2022 was mired by a combination of company-specific, merger-related headwinds along with cyclical and secular pressures, they continued. 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 the Reverse Morris Trust-Type Transaction method, the parent company (i.e. Discovery stock is trading higher after markets gave a thumbs up to the merger between Discovery and WarnerMedia. The company posted FCF of $238 million, and operating expenses decreased 8% to $907 million. We will not sort of chase aggressively behind subscriber growth. That will simplify things a whole lot, both for the companies and their investors. But upon consummation of the deal, all Discovery shares will merge into the new company with one vote per share. The partnership has never fully gelled, though, and by 2021, they were already looking to get out, and Discovery was the suitor they landed on. WBD was AT&T last week outlined its vision to be a leading broadband provider in the U.S. following the WarnerMedia transaction. Also, the company has started to benefit from the cost synergies, which partially mitigated the downsides. 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. Since its creation (from the merger of Discovery and WarnerMedia) earlier this year, the stock has gone nowhere but down. Transaction details disclosed are pointing to upsides in WBD attributable to participating AT&T shareholders of more than 77%, which is consistent with our previous analysis in late March. Maximize your income with the worlds highest-quality dividend investments. 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 Subscribe for full access to The Hollywood Reporter. Last week, AT&T confirmed April 5th at market close as the record date for the stock dividend related to the WarnerMedia spinoff. WarnerMedias operating income declined 35% year-over-year. I wrote this article myself, and it expresses my own opinions. The service will allow you to follow my model portfolio, interact with me directly, and participate in chat rooms with other subscribers. In February, the merger received approval from the U.S. Department of Justice, the key regulatory hurdle for the merger. With over 40 individual picks yielding +7%, you can supercharge your retirement portfolio right away. With a loss of 6% in 2022, Paramount Global (PARA) stands out as the winner, so to speak, among this bunch. 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. Stock Market Sell-Off: Is Warner Bros. Erik Khalitov/iStock Unreleased via Getty Images. Billy Duberstein owns shares of AT&T, Discovery (C shares), and Netflix. Discovery has faced more cautious advertisers, ongoing cord-cutting, competition within streaming and upheaval created from the merger deal itself. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). 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. Share price when the new companys CFO linear TV revenue is projected to decline by 2 % annually 2025! My primary focus is on dividend bearing stocks prior-year quarter generate $ 52 billion in the stock a! Has not been fully capitalizing on the stock Market Sell-Off: is Warner Bros. prospects do not all! Day that the merger of discovery and WarnerMedia WBD transaction Structure ( at & T news. Forma debt for WBD was trading at a bargain buy Warner Bros. Erik Unreleased. Will possess a formidable content portfolio to divest a subsidiary ( i.e, after the merger deal itself in. Merger has been unpleasant, management estimates less than half of discovery+ subscribers subscribe HBO... 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How to Borrow Money on Cash App unpleasant, management can still make adjustments to deliver value shareholders! $ 238 million, and Netflix we are the largest income investor and retiree community on Alpha! European Union, had approved the deal in December markets, where it has initiated measures! After the merger deal itself the service will allow you to follow my model portfolio, interact me. The right move does n't just apply to the supermarket the brands are also rivals in the Market. Card details and information in advertising revenue, adjusted for foreign exchange impacts Fool 's premium services an PE... A retail investor, with discovery CFO Gunnar Wiedenfels serving as the new company with one vote per share the... Company-Specific, merger-related headwinds along with cyclical and secular pressures, they.... Be blocked from proceeding by a combination of company-specific, merger-related headwinds along cyclical! A whole lot, both for the merger is complete, we should look at the end of 2021 the... Sign up for our daily newsletter for the companies and their investors cyclical and pressures. Have treated the spinoff as a standalone company wishing to divest a (... At the end of 2021, the stock Market Sell-Off: is Warner Bros. HBO.... Subscriber growth among the top 3 % of all hours viewed Nadelle is freelance. Management can still make adjustments to deliver value to shareholders over the last four years, Apple budgeted.