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Warner Bros. Discovery (DISCA) Emerges From $43B Merger

·3 min read

Warner Bros. Discovery DISCA recently announced the completion of the transaction to combine the AT&T’s T WarnerMedia business with Discovery.

The merger created a premier standalone global media and entertainment company, Warner Bros. Discovery, Inc., which will be effective from Apr 11.

Back in June 2021, Discovery (as the company was previously called) had announced the new name of the proposed standalone global entertainment company that would be created post the combination of WarnerMedia and Discovery assets.

With the merger in place and resources, Warner Bros. Discovery can now create the most complete and versatile portfolio of brands, franchises and content across television, film and streaming.

The transaction brought together WarnerMedia’s premium entertainment, sports and news assets with Discovery’s leading nonfiction and international entertainment and sports businesses.

Per the agreement, which was structured as a Reverse Morris Trust transaction, AT&T received $40.4 billion in cash and WarnerMedia’s retention of certain debt.

Post completion, AT&T owns 71% of the new entity, while Discovery owns the remainder.

Merger to Ramp Up Streaming Competition

Notably, video streaming has been one of the few industries that have benefited from coronavirus-induced disruptions. Lockdowns and movement restrictions forced most of the global population to stay at home, ramping up demand for media content.

The robust demand for media content has not only benefited major players such as Netflix NFLX and Amazon AMZN but also the likes of newly-released services – Disney+, NBCUniversal’s Peacock and Apple TV+.

The WarnerMedia-Discovery deal will intensify competition in the streaming market space, currently dominated by Netflix, Amazon and Disney+, driven by its solid content portfolio and increased spending capabilities.

The merger is expected to generate DTC revenues of more than $15 billion in 2023. Moreover, cost synergies are expected to cross $3 billion per year.

Discovery, Inc. Price and Consensus

Discovery, Inc. Price and Consensus
Discovery, Inc. Price and Consensus

Discovery, Inc. price-consensus-chart | Discovery, Inc. Quote

With the completion of the merger, Warner Bros. Discovery now has a library of more than 200,000 hours of content, including series and films along with premium sports rights in the United States, Europe and Latin America. The service will be available in more than 220 countries and 50 languages.

Presently, Warner Bros Discovery's portfolio includes Discovery Channel, Warner Bros. Entertainment, CNN, HBO, Cartoon Network; streaming services Discovery+ and HBO Max; and franchises like Batman and Harry Potter.

The combined streaming offerings of the merger and the vast global subscriber base of the companies individually (before the merger) signal that the new Warner Bros. Discovery would look to reach 300-400 million subscribers in the future.

Per a Variety report, Discovery reported 22 million worldwide streaming customers at the end of 2021. Meanwhile, HBO Max and HBO ended 2021 with 73.8 million global subscribers. Disney+ ended 2021 with nearly 130 million and Netflix with nearly 222 million.

At present, Warner Bros. Discovery holds a Zacks Rank #3 (Hold).

Shares of DISCA have increased 3.8% against the Zacks Broadcast Radio and Television industry’s decline of 27.3% and the Consumer Discretionary sector’s fall of 15.2% in the year-to-date period.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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