Discovery Faces Harsh Reality With Warner Media: “Even show-business marriages have longer honeymoon periods than this”

From a Wall Street Journal story by Dan Gallagher headlined “Discovery Faces Harsh Reality With Warner Media”:

Even show-business marriages have longer honeymoon periods than this.

Last Monday’s announcement of a mega-media combination of Discovery Inc. with the WarnerMedia business of AT&T initially thrilled the investors of both companies. Discovery’s share price opened the day up 10% on the prospect of the niche cable-content provider suddenly becoming one of the largest Hollywood players. Meanwhile, AT&T’s share price jumped nearly 4% on the notion that the telecommunications giant could focus better on its core business without having to also pour capital into a media venture that was never popular with its own investors.

The warm feelings didn’t last. Both stocks soon turned south….Discovery kept falling—losing nearly 12% by the end of the week. The potential merits of the deal haven’t changed, but the risks have grown clearer. The complicated transaction will result in a much bigger and much more indebted Discovery, run by its current management but majority owned by AT&T shareholders. And the combined company faces a rapidly changing media landscape with a growing list of competitors. For example, last week brought reports that Amazon.com was in takeover discussions with MGM Holdings….

Discovery’s stock had already been on a wild ride due to its part in the Archegos Capital selloff earlier this year. The pending merger will add some fresh drama. Both Discovery and AT&T have to preserve the value of the WarnerMedia business during a highly uncertain period while awaiting regulatory approvals, which could take a year or more. The New York Times reported that WarnerMedia Chief Executive Officer Jason Kilar already has hired a legal team to negotiate his departure….

How to integrate the two operations is also a major question hanging over the deal. As the home for the old Warner Bros. studio along with HBO and the Turner media properties, WarnerMedia specializes in broad offerings designed for mass appeal. Discovery has made its name with more niche offerings such as Animal Planet, TLC and the recently acquired Food Network and HGTV….

Discovery’s most hair-raising reality show might be the one the company has now cast itself in.