The Warner Bros.-Discovery deal has officially closed

Last Friday, Discovery, Inc. and AT&T Inc. announced that they officially closed their deal with WarnerMedia. Under terms of the agreement, AT&T received $40.4 billion in cash and WarnerMedia’s retention of certain debt at close.

Today, on Monday, April 11, the company will begin trading on the Nasdaq under the new ticker symbol “WBD.” AT&T shareholders received 0.241917 shares of WBD for each share of AT&T held, subsequently receiving 1.7 billion shares of WBD, which represents 71% of the total. AT&T shareholders continue to hold the same number of shares of AT&T common stock they held immediately prior to close.

CEO David Zaslav said that the announcement of the mega-merger “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.”

“With our collective assets and diversified business model, Warner Bros. Discovery offers the most differentiated and complete portfolio of content across film, television, and streaming,” the CEO added. “We are confident that we can bring more choice to consumers around the globe while fostering creativity and creating value for shareholders. I can’t wait for both teams to come together to make Warner Bros. Discovery the best place for impactful storytelling.”

The third-best streaming service company in the world

The combined media and entertainment company, Warner Bros. Discovery Inc., will house three streaming services: HBO Max, Discovery+ and CNN+; Warner Bros. studio; and cable channels such as TNT, TBS, Food Network, Investigation Discovery, TLC, Discovery, truTV, Travel Channel, MotorTrend, Animal Planet, Science Channel, New Line Cinema, Cartoon Network, Adult Swim, HGTV and HBO, among others.

Discovery+ and HBO Max are expected to merge into a single service; however, as of now, it will act as a bundle similar to the Disney+/Hulu/ESPN+ offering. On the other hand, CNN+, which launched last month, may or may not be bundled. The streaming service had a lackluster launch; however, CNN has said that subscriber numbers are “well ahead of expectations.”

Either way, the bundling of HBO Max and Discovery+ will unite two strong content libraries with valuable IP and a variety of content that Netflix has spent many years achieving. Subscribers will have access to almost 200,000 hours of programming and over 100 brands, which we highlighted above.

Ultimately, the newly formed media giant becomes one of the biggest players in the industry, alongside Disney and Netflix. The estimated market cap for Warner Bros. Discovery is between $45 billion and $60 billion. This puts it in third place, next to Disney, with a market cap of $240 billion and Netflix’s market cap of $161 billion.

The combined value of the company is predicted to be $130 billion, according to Axios, and its 2023 revenue is anticipated to be around $52 billion, with $15 billion expected from DTC revenue. Deadline reported that the projected combined revenue for the company in 2022 is $49.8 million.

HBO Max and HBO had 73.8 million global subscribers at the end of 2021, whereas Discovery had 22 million paying streaming subscribers. Since Discovery has more niche unscripted content than WarnerMedia and less variety, this will position the company as a more formidable streaming competitor.

The new leadership team

Despite being the minority stakeholder, with shareholders owning 29%, Discovery has operational control of WBD. Last week, former WarnerMedia CEO Jason Kilar stepped down as David Zaslav took his position as Warner Bros. Discovery’s chief executive officer.

The company’s longtime CEO, Zaslav, has assembled a management team mostly from the ranks of his alma mater, and sources close to the situation told Variety that he would have a direct-report relationship with the leaders of the businesses he isn’t as familiar with.

Those remaining with the new company include Casey Bloys, the chief content officer of HBO/HBO Max (who will be adding Chip and Joanna Gaines’ Magnolia Network to his responsibilities), Warner Bros. TV Group chief Channing Dungey, and Warner Bros. Pictures chairman Toby Emmerich. Also, Gerhard Zeiler will become president of International channels for Warner Bros., and Chris Licht will serve as chairman and CEO of CNN Global (a role he filled after the abrupt exit of Jeff Zucker).

Trusted Discovery lieutenants Bruce Campbell and JB Perrette will get key operational roles and help manage the large number of direct reports. Campbell, who previously served as Discovery’s chief development, distribution and legal officer for Discovery, will become chief revenue and strategy officer. Meanwhile, Perrette will trade in his role as Discovery’s president and CEO of streaming and international for CEO and president of Warner Bros. Discovery Global Streaming and Interactive Entertainment.

In addition, Kathleen Finch, formerly Discovery’s chief lifestyle brands officer, will become chairman and chief content officer of U.S. Networks Group. Discovery CFO Gunnar Wiedenfels will continue in his role, Adria Alpert Romm will continue as chief people and culture officer, with Lori Locke as chief accounting officer and David Leavy as chief corporate affairs officer.

There are still roles that have yet to be filled but will be at a later date.

AT&T’s massive debt

AT&T CEO John Stankey said, “We are at the dawn of a new age of connectivity, and today marks the beginning of a new era for AT&T. With the close of this transaction, we expect to invest at record levels in our growth areas of 5G and fiber, where we have strong momentum, while we work to become America’s best broadband company. At the same time, we’ll sharpen our focus on returns to shareholders. We expect to invest for growth, strengthen our balance sheet and reduce our debt, all while continuing to pay an attractive dividend that puts us among the top dividend-paying stocks in America.”

For the last two years, Stankey (WarnerMedia’s first CEO) has been unwinding his predecessor Randall Stephenson’s acquisitions.

Moreover, in 2018 under Zaslav, Discovery bought Scripps, owner of Food Network and HGTV, for $14.6 billion. In contrast, that same year, AT&T purchased a well-known cable television company that ended up being an epic fail.

The agreement will likely allow AT&T to pay off its monstrous debt. Building a streaming-ready media conglomerate isn’t cheap, and the telecommunications company has spent colossal amounts of money, including its $67 billion acquisition of DirecTV in 2015 and the controversial $85 billion deal for then Time Warner four years ago. At the end of 2019, AT&T still carried more than $151 billion in debt.

Following the Time Warner deal, which was hard to close because of an antitrust lawsuit and Trump-appointed regulators, the company was rebranded as WarnerMedia, blending together HBO, Warner Bros., Turner Broadcasting and CNN.

This gargantuan debt is a glaring issue, especially since AT&T is focused on increasing revenue with price hikes, despite subscriber losses.