AT&T and Discovery Complete WarnerMedia Transaction, New Company Warner Bros Discovery Named a Top Media Pick at Deutsche Bank
2022.04.11 16:22
AT&T (T) and Discovery Complete WarnerMedia Transaction, New Company Warner Bros Discovery (WBD) Named a Top Media Pick at Deutsche Bank
Discovery (NASDAQ:DISCA) and AT&T (NYSE:T) announced on Monday they have completed the previously-announced deal that will create Warner Bros. Discovery, a standalone global media and entertainment giant.
The combined company, a result of Discovery’s merger with AT&T’s Warner Media, is set to begin trading on the Nasdaq stock exchange today under the ticker symbol “WBD.”
“Today’s announcement marks an exciting milestone not just for Warner Bros. Discovery but for our shareholders, our distributors, our advertisers, our creative partners and, most importantly, consumers globally,” said David Zaslav, CEO of Warner Bros.
Under the terms of the deal, AT&T received $40.4 billion in cash and WarnerMedia’s retention of certain debt. AT&T investors received 0.241917 shares of the combined company for each AT&T common share they owned at the close.
Ultimately, shareholders of the telecommunications company received 1.7 billion WBD shares, which accounts for 71% of the combined company’s stock on a fully diluted basis. Shareholders of Discovery hold the remaining stake of WBD.
Following the completion of the deal, Deutsche Bank analyst Bryan Kraft named WBD a new Top Pick in the bank’s media sector coverage. A new price target is $48.00 per share, up from $40.00.
“We view the new Warner Bros. Discovery (WBD) as one of the best positioned companies in the global streaming video entertainment industry1 given its content and IP portfolio, combined with its widely recognized HBO Max brand and existing base of 92M streaming subscribers. From a content perspective, we view WBD as #1 in scripted general entertainment content given the Warner Brothers + HBO libraries and current production slates; and #1 in unscripted given legacy Discovery’s content across its lifestyle brand portfolio. We also view CNN as a valuable and differentiating asset for WBD’s global streaming business,” Kraft said in a client note.
The analyst believes WBD could reach 194 million global DTC/streaming subscribers by the end of 2026.
“Given that Netflix (NASDAQ:NFLX) is already at 222M subscribers, we believe there could be upside to our WBD forecast,” the analyst added.
On the other hand, Bank of America analyst David Barden reiterated a Buy rating on T stock on premium yield and value. The analyst also lowered the price target to $25.00 per share from $35.00 to reflect the WM spin.
“We believe AT&T’s shares are undervalued. In recent years T’s valuation has reflected an overly complex structure of loosely-related businesses sub-optimally organized as a conglomerate. While the divestitures of the past year have addressed the complexity (admittedly in a complex way sometimes eg. DTV), headwinds were once again created on May 17, 2021 when AT&T announced the dividend reset to $1.11/share (from $2.08) once the WM spin closed. With the deal now closed, the dividend reset, and the investor base stabilizing, we believe the stage is set for investors to begin focusing on AT&T’s improving fundamentals,” Barden wrote in a memo.
By Senad Karaahmetovic
