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AT&T, Warner Bros. Discovery Deal Leaves Plot Twists for Investors

AT&T, Warner Bros. Discovery Deal Leaves Plot Twists for Investors

Primetime TV came early — very early — Monday morning to investors as the massive deal between Discovery and AT&T(T) closed, clearing the picture for Warner Bros. New Discovery (WBD).

Based on market reaction, the deal has garnered high ratings for each company, with shareholders already set for a decent boost. Even with stock trends split a bit on Tuesday, the overall sentiment is still positive.

“The merger deals with these media conglomerates is a strategy to acquire more diverse content. This is in line with Disney (DIS)’s acquisition of Fox (FOXA) a few years ago, which delivered a diverse range of content and facilitated the launch of Disney+,” said Kira Baka, chief executive officer. Revenue in the intellectual property rights company Rightsline real money. “Through the amalgamation of Discovery, which is featured heavily in unscripted documentaries, lifestyle, DIY branding, WarnerMedia’s written features, branding and spin-offs, they have the opportunity to capture a common market to rival all competitors.”

But she noted, “the devil is in the data” for investors who own the two companies now that details about the integration are still open to debate.

Details of the transaction

AT&T received $40.4 billion in cash and offloaded part of the debt, while Warner Bros. Discovery is a collection of programs to add to your broadcast and cable offerings.

“Today’s announcement marks an exciting milestone not only for Warner Brothers discovery but for our shareholders, distributors, advertisers, creative partners, and most importantly, consumers globally,” said David Zaslav, CEO of the new company upon closing. “Through our collective assets and diversified business model, Warner Bros. Discovery offers the most unique and complete selection of content across film, television and live broadcasts.”

This prestigious portfolio includes streaming shows from HBO Max, Discovery+ and CNN+; and cable channels like TNT, TBS, TLC, truTV, Animal Planet, Cartoon Network and more. The acquisition arguably places the new company in competition between current streaming leaders such as Netflix (NFLX), Apple (AAPL) and Amazon (AMZN).

Also, AT&T shareholders received approximately a quarter of the WBD stake for every AT&T share they owned prior to the transaction. As such, former AT&T shareholders now own the majority of outstanding shares in the new entity. Both Discovery shareholders and AT&T should examine the new company more closely.

Dive into a new discovery

The rationale for the discovery is straightforward. Content is king and the deal secures a huge catalog of shows and movies for the company.

Most importantly, it insures the company’s HBO Max, which is currently among the most popular entertainment shows and known for providing outstanding shows and movies. HBO Max ended 2021 with a total of 73.8 million global subscribers, more than three times the current Discovery+ user base. As such, the new company will attract over 100 million streaming subscribers globally.

“As a joint venture, Warner Bros. Discovery is rich in content and has a lot of assets to stream,” said Navdeep Saini, CEO of media technology company DistroTV. real money. “WBD is good at SVOD, but what the company is missing is the FAST (ad-supported free broadcast TV) platform. If recent reports from Nielsen are any indication, FAST is the way forward in the highly competitive streaming industry. that has reached a tipping point.”

He added that from this point of view, consolidation and a clear focus on agile programming would be a huge boost for the company.

However, not all reviews are so rosy.

“There is conventional wisdom that ‘bigger is better’ and that a combined company will have a lot of power when it comes to things like transfer deals for its linear networks,” said Rick Ellis, founder of media analysis firm AllYourScreens. real money. “But bringing the two companies’ live broadcasting businesses together would be challenging, especially given the fact that their live broadcasting businesses look very different internationally.”

He added that merger risks are also increasing due to management changes which are still somewhat uncertain. This only adds to the issues of debt burden on the newly formed company which will compete with its wealthy peers.

The agreement includes clauses that leave the new company on the hook for large amounts of AT&T’s large debt, owed through failed DirecTV deals in 2015 and Time Warner.

“We expect the high debt load and uncertainty around key strategic questions to weigh on stocks,” Michael Nathanson, analyst at Moffett Nathanson commented in a note to clients. “In addition, we are concerned about additional pressure on WBD from the AT&T shareholder base that tends to sell off a 71 percent stake due to a different investment profile.”

While its “neutral” rating contrasts with the general bullish sentiment on Wall Street, it is instructive for investors in every company to absorb.

Tighter focus at AT&T

The questions posed to AT&T shareholders are twofold, both on the new company and regarding AT&T’s now less indebted company.

For the former, debt and the ability to compete with established streaming giants will cloud decisions. So do concerns about many of their AT&T-Holding compatriots heading to the outlet. For the latter, the equation looks more positive.

“On the AT&T side, getting rid of Warner Bros. would be less of a distraction for the company,” said Ellis of AllYourScreens. “Executives have really had no impact on the TV/streaming business, and CEO John Stanke spent a lot of time second-guessing WB management. In many ways, this deal is a best-case scenario for AT&T.”

The laser focus on the areas of competence was an obvious focus from management as well.

“We are at the dawn of a new era of connectivity, and today marks the beginning of a new era for AT&T,” said John Stanke, CEO of AT&T. “With the closing of this transaction, we expect to invest at record levels in our 5G and fiber growth areas, where we have strong momentum, while working to become America’s best broadband company. At the same time, we will sharpen our focus on returns shareholders.”

The comment is looking positive for investors so far, as stocks and general confidence in the company’s ability to invest with a better balance sheet and safer dividends pick up. Analysts also appreciated the firmer focus.

“AT&T is more focused on communications, looking more like Verizon (VZ) now than it has in years after eliminating distractions, pulling revenue from the declining satellite video business and capital commitments to Warner/HBO media companies,” JPMorgan analyst Phil Cusack wrote in A note on inventory upgrade upon completion of the transaction.

Ultimately, the upside prevails in both as the deal finally gets completed. However, based on how many questions remain, the healthier AT&T appears to be the more attractive option of the two.

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