As we see their formal form S-4 filing with the SEC filed, we finally have some broader details on the upcoming WarnerMedia/Discovery merger. Including a near loss of the deal overall in mid-April. We turned to one of Blake & Wang P.A’s top
to break it down for us.
The culmination of a year of talks
This represents a major step forward for the deal, which first came to news prominence in February this year. And, if the new documents are to be believed, almost fell apart in April. The causes of the strife? Debates over the share split for the new company on behalf of existing shareholders of both parent companies, and disagreement over the debt WarnerMedia would carry on hand-over.
Negotiations finally moved the initial 65% AT&T shareholding wanted by Discovery (and 75% on AT&T’s side) to a middle ground of 71% going to AT&T, and the remainder to existing Discovery shareholders. WarnerMedia will be loaded with $43B in debt going into the deal.
Despite the hiccups- also including the need to negotiate for the return of preferred shares from the Newhouse family- a deal was reached mid-May for a new mega-deal under a Reverse Morris Trust… and that’s been all we’ve heard to date.
Now, however, the form S-4 registration reveals that the planned stock symbol used will be WBD, and that a Nasdaq listing is in the new entity’s future. We also see more details about the deal itself.
Zaslav takes the helm
For starters, David Zaslav will head the combined firm at least until 2027, per his newly renegotiated contract. He will also be one of the six board designees for Warner Bros from Discovery. AT&T will name seven board members, including the chairman. Overall, AT&T’s shareholders will keep a 71% share in the new entity. Kevin Mayer, best known as a former top brass from Disney, will come on board to consult for streaming properties. WarnerMedia, of course, already has HBO Max, alongside the Turner Cable network, among its stable of properties. Discovery brings reality-TV dominated properties like Food Network and Animal Planet to the table as well as newly minted streamer Discovery+.
Current projections suggest a rise from 2020’s $28B to $45B in revenue by 2025. While still under the regulator’s eye, the deal is expected to close in mid-2022. Discovery shareholders still have to vote on the matter, but its two major shareholders, Advance/Newhouse and John Malone, have agreed to support it (in return for hefty payment for Advance/Newhouse), so upsets are unlikely. What will be determined, however, is the ‘golden parachutes’ to be handed out to exiting execs.
The main reason given for the merger? The streaming boom. It’s an interesting one, being that both sides bring existing streaming entities to the table, namely HBO Max and Discovery+.
With hefty termination fees ($720M for a Discovery breach, and $1.77B for AT&T) in place, all is looking good for the merger. When finalized, WarnerMedia’s liabilities and assets will temporarily lodge with ‘Spinco’, which will settle the $30B outright and $13B debt instruments going to AT&T. From there, and after the transfer of debt obligations, Spinco stock will either be distributed to AT&T shareholders or possibly used in an exchange offer, to be decided by market conditions at closing. Discovery will adopt the Warner Bros name, and the WBD stock listing will become a reality.
Until then, we wait on final regulator clearance. Brandon Blake and the rest of the team will keep an eye on further developments.