Pomerantz Law Firm Announces the Filing of a Class Action Against Discovery, Inc., Warner Bros. Discovery, Inc., and Certain Officers - WBD
NEW YORK, Oct. 25, 2022 /PRNewswire/ -- Pomerantz LLP announces that a class action lawsuit has been filed against Discovery, Inc. ("Discovery"), Warner Bros. Discovery, Inc. ("WBD") (NASDAQ: WBD), and certain officers. The class action, filed in the United States District Court for the Southern District of New York, and docketed under 22-cv-09125, is on behalf of a class consisting of all persons and entities who: (1) exchanged Discovery common stock for WBD common stock pursuant or traceable to Discovery's February 4, 2022 Registration Statement on Form S-4 (the "Registration Statement") and Joint Proxy Statement/Prospectus filed with the U.S. Securities and Exchange Commission ("SEC") on February 10, 2022 (the "Prospectus"); (2) acquired WBD common stock pursuant or traceable to the Registration Statement and Prospectus, including shareholders of AT&T Inc. ("AT&T") and/or Magallanes, Inc, a Delaware corporation ("Spinco") who acquired WBD common stock as a result of the merger (the "Merger") between Discovery and Spinco; or (3) purchased shares of WBD common stock on the open market traceable to the Prospectus through the date of the filing of the Complaint (the "Section 11 Class").
This class action is also brought on behalf of a subset of the Section 11 Class consisting solely of former Discovery shareholders who exchanged Discovery common shares for WBD common shares pursuant to the Prospectus (the "Section 12(a)(2) Subclass").
Excluded from the Class are the Defendants herein, the officers and directors of Discovery or WBD, from May 17, 2021 to the present (the "Excluded D&Os"), members of Defendants' and Excluded D&Os' immediate families, legal representatives, heirs, successors or assigns, and any entity in which Defendants or the Excluded D&Os have or had a controlling interest.
If you are a shareholder who (1) exchanged Discovery common stock for WBD common stock pursuant or traceable to the Registration Statement and Prospectus, (2) acquired WBD common stock pursuant or traceable to the Registration Statement and Prospectus, including if you are a shareholder of AT&T and/or Spinco who acquired WBD common stock as a result of the Merger, or (3) purchased shares of WBD common stock on the open market traceable to the Prospectus through the date of the filing of the Complaint, you have until November 22, 2022 to ask the Court to appoint you as Lead Plaintiff for the class. A copy of the Complaint can be obtained at www.pomerantzlaw.com. To discuss this action, contact Robert S. Willoughby at [email protected] or 888.476.6529 (or 888.4-POMLAW), toll-free, Ext. 7980. Those who inquire by e-mail are encouraged to include their mailing address, telephone number, and the number of shares purchased.
[Click here for information about joining the class action]
This action relates to the Merger between Discovery and Spinco, a wholly owned subsidiary of AT&T organized specifically for the purpose of effecting the separation of the WarnerMedia business from AT&T. The Merger was announced on May 17, 2021 and closed on April 8, 2022.
Prior to the Merger, AT&T transferred its WarnerMedia business to Spinco. In exchange therefor, as contemplated by and required of the Merger, AT&T distributed all of the issued and outstanding shares of Spinco common stock to AT&T stockholders on a pro rata basis.
Pursuant to the Merger, Discovery combined its business with Spinco (including the WarnerMedia business that Spinco had acquired from AT&T) to form WBD. Each Discovery common shareholder received in the Merger one share of WBD common stock for each Discovery common share owned, and each Discovery preferred shareholder received shares of WBD common stock in an agreed ratio. AT&T received directly from WBD the balance of the outstanding and issued WBD common shares and contemporaneously distributed those shares to AT&T's shareholders. Specifically, as a result of the Merger, the shares of Spinco common stock that AT&T stockholders received (in consideration for the separation of the WarnerMedia business from AT&T) were automatically converted into the right to receive shares of WBD common stock registered pursuant to the Registration Statement. Each AT&T shareholder received .241917 shares of WBD for each AT&T share owned.
As a result of the Merger, former Discovery shareholders owned 29% of the equity of WBD, and AT&T's shareholders owned 71% of the equity of WBD.
In addition to the exchange of businesses and shares, pursuant to the Merger, Discovery paid AT&T additional consideration in the form of $40.4 billion in cash and separately the retention of certain WarnerMedia debt.
The Merger was subject to a March 11, 2022 majority vote of Discovery voting shareholders of record as of January 18, 2022 but was not subject to a vote of AT&T shareholders.
The complaint alleges that, at the time of filing the Registration Statement and Prospectus, Discovery and the Individual Defendants either knew or had access to adverse information concerning operations of the WarnerMedia business.
However, that adverse information was not disclosed to Discovery or AT&T shareholders in the Registration Statement or Prospectus or at any time before the vote on the Merger or the effective date of the Merger. As a result, the Registration Statement and Prospectus and certain of the Defendants' other public statements contained untrue statements of material fact or omitted to state material facts required to be stated therein or necessary to make the statements therein not misleading, in violation of Sections 11 and 12(a)(2) of the Securities Act of 1933 ("Securities Act").
This adverse information was known or knowable to Discovery and the Individual Defendants prior to the March 11, 2022 shareholder vote, as they would have, or at a minimum should have, been part of due diligence for the Merger. For example, Defendants acknowledged after the Merger that: (i) WarnerMedia's HBO Max streaming business had a high churn rate that made the business not "viable" unless the churn rate was reversed; (ii) AT&T was overinvesting in WarnerMedia entertainment content for streaming, without sufficient concern for return on investments; (iii) WarnerMedia had a business model to grow the number of subscribers to its streaming service without regard to cost or profitability; (iv) WarnerMedia was improvidently concentrating its investments in streaming and ignoring its other business lines; and (v) WarnerMedia had overstated the number of subscribers to HBO Max by as many as 10 million subscribers, by including as subscribers AT&T customers who had received bundled access to HBO Max, but had not signed onto the service. Each of these facts were known or knowable with the exercise of reasonable care at the time of the filing of the Registration Statement and Prospectus, the shareholder vote, and the Merger.
Discovery and the Individual Defendants misrepresented and omitted from the Registration Statement and Prospectus the foregoing material facts.
On April 21, 2022, prior to the opening of the NASDAQ, AT&T issued a press release reporting its first quarter 2022 results (reflecting WarnerMedia's operations for the quarter) disclosing that WarnerMedia's operating income had fallen 32.7% year over year to $1.3 billion. AT&T also disclosed on a conference call transcribed and made available by Bloomberg that free cash flow had declined $2.6 billion year-over-year and attributed the decline to "$1.2 billion in lower year-over-year securitization of receivables in advance of the transaction, $600 million in higher cash content spend, increased investments in HBO Max global footprint and wrap up with the CNN+ launch as well as NHL right payments and other working capital changes."
On April 21, 2022, it was reported during trading hours by a variety of news services that new WBD management was shutting down CNN+ after it was started up a month earlier. According to published reports, including the Washington Post, CNN+ had drawn modest subscription sign-ups and faced uncertain long-term prospects.
AT&T's earnings release and the sudden news concerning CNN+ caused WBD shares to decline on April 21, 2022 by $1.56 per share, or 6.8%, from $23.01 to $21.45 per share.
On April 26, 2022, prior to the opening of the securities markets, WBD issued a press release and held an investor conference call reporting its first quarter 2022 operating results. The conference call was transcribed and made available on Bloomberg.
Inasmuch as the Merger had only closed on April 8, 2022, the first quarter results only reported Discovery's operations as a stand-alone company.
However, in the conference call following issuance of the press release, also conducted prior to the opening of securities markets, senior WBD management expressed their disappointment with WarnerMedia's first quarter operating results of "more than $40 billion of revenue and really virtually no free cash flow." "[T]he operating results . . . were down in WarnerMedia's first quarter, 33% decline versus prior year to $1.3 billion. Free cash flow declined even more, declining by $2.6 billion versus prior year and more importantly significantly negative in absolute terms." Defendant Gunnar Wiedenfels ("Wiedenfels"), WBD's Chief Financial Officer, stated on the call that WarnerMedia's "Q1 operating profit and cash flow . . . were clearly below my expectations. And given that Q1 performance and previously unplanned projects in sight, I currently estimate the WarnerMedia part of our profit baseline for 2022 will be around $500 million lower than what I had anticipated."
Wiedenfels added WBD was in the process of rectifying "certain [WarnerMedia] investment initiatives underway in plain sight that I don't think have attractive enough return profiles . . . . I feel very confident in our ability to rectify some of the drivers behind the business case deviations and some very quickly, with the CNN+ decision last week being Exhibit A." Wiedenfels repeated that "CNN+ is just one example, and I don't want to go through sort of a list of specific examples, but there's a lot of chunky investments that are lacking what I would view as a solid analytical financial foundation and meeting the ROI hurdles that I would like to see for major investments. 2022 very much looks a little messier than probably what I had hoped for."
Wiedenfels surprised investors on the April 26, 2022 call by saying: "There is meaningful churn on HBO Max, much higher than the churn that we have seen."
Defendant David Zaslav ("Zaslav"), WBD's Chief Executive Officer, also added on the April 26, 2022 call that "a lot of synergy potential is really going to come from cost avoidance and elimination of planned expenses for the streaming business."
Thus, Zaslav revealed that the "synergies" that had been promised through terminating duplicative operations (primarily administration and marketing), that would enable WBD to invest in more content, were going to be achieved through reducing content, such as the cancellation of CNN+.
On April 26, 2022, the price of WBD common stock fell by $1.67 per share, or 7.8%, from a closing price of $21.50 per share on April 25, 2022 to close at $19.83 per share on April 26, 2022.
Then, on August 4, 2022, after the close of the U.S. securities markets, WBD issued a press release and held an investor conference call announcing its second quarter 2022 operating results. The conference call was transcribed and made available on Bloomberg.
The press release revealed that WBD had adjusted its "DTC subscriber definition," and that the new definition "resulted in the exclusion of 10 million legacy Discovery non-core subscribers" and "unactivated AT&T mobility subscribers from the Q1 subscriber count."
On August 5, 2022, the first trading day after release of WBD's second quarter results, and the August 4, 2022 conference call, WBD's common stock fell by $2.89 per share, or 16.5%, from $17.48 per share to $14.59 per share.
WBD common shares have fallen by $12.99, or 52.4%, from $24.78 per share on April 11, 2022, to $11.79 on September 23, 2022.
Pomerantz LLP, with offices in New York, Chicago, Los Angeles, London, Paris, and Tel Aviv, is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, Pomerantz pioneered the field of securities class actions. Today, more than 85 years later, Pomerantz continues in the tradition he established, fighting for the rights of the victims of securities fraud, breaches of fiduciary duty, and corporate misconduct. The Firm has recovered numerous multimillion-dollar damages awards on behalf of class members. See www.pomlaw.com
CONTACT:
Robert S. Willoughby
Pomerantz LLP
[email protected]
888-476-6529 ext. 7980
SOURCE Pomerantz LLP
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