Warner Bros. ‘misled shareholders’ to complete Discovery merger, new class action lawsuit claims
A new class action lawsuit claims Warner Bros. ‘overstated’ its number of HBO Max subscribers by as many as 10 million and misled shareholders with ‘adverse information’ in its $43 billion merger with Discovery.
The lawsuit, brought forth by the Illinois-based Collinsville Police Pension Board, says the plaintiff believes there are ‘hundreds or thousands’ of people affected.
‘WarnerMedia was improvidently concentrating its investments in streaming and ignoring its other business lines, and WarnerMedia had overstated the number of subscribers,’ the lawsuit reads.
This was done by including AT&T customers who received the streaming service via a bundle who had never logged in to use it, it continues.
‘Each of these facts were known or knowable’ at the time of the merger.
Over 700 million WarnerBros. Discovery shares were issued to Discovery common and preferred shareholders, which were valued at $24.78.
Now, as of Wednesday, WarnerBros. Discovery shares are at $11.42.
The class action lawsuit is filed against CEO David Zaslav (left) and CFO Gunnar Wiedenfels (right) for ‘misleading’ investors before the Warner Bros.-Discovery merger
The merger, which totaled $43 billion, brought the two streaming services together in a deal announced in May
Just before the merger was completed, Discovery shares sat at $24.78. Now, Warner Bros. Discovery sits at $11.42
The pension board urges those who purchased WBD stock post-merger to join the lawsuit.
The lawsuit says ‘AT&T was overinvesting in WarnerMedia entertainment content for streaming, without sufficient concern for return on investments … WarnerMedia had a business model to grow the number of subscribers to its streaming service without regard to cost or profitability.’
Compensatory damages are being sought by the lawsuit, which would be determined in court.
It also seeks all possible damages as a result of the ‘wrongdoing’ done by the defendants, WBD CEO David Zaslav and CFO Gunnar Wiedenfels.
Throughout the lawsuit, quotes pertaining to the streaming service and its subscriber base from Zaslav and Wiedenfels are sprinkled in.
‘There is a meaningful churn on HBO Max, much higher than the churn that we have seen,’ Wiedenfels, formerly of Discovery, allegedly told investors on April 26.
Pictured: The lawsuit filed by the Collinsville Police Pension Board alleging Warner Bros. Discovery executives lied to investors
Pictured: The lawsuit claims investors were told HBO Max had, at most, 10 million more subscribers than were accurate
Pictured: The $43 billion merger was meant to save both companies $3 billion
A press release from WBD on August 4 says WBD adjusted its ‘DTC subscriber definition,’ with a new definition that ‘resulted in the exclusion of 10 million legacy Discovery non-core subscribers.’
This included ‘unactivated AT&T mobility subscribers from the Q1 subscriber count.’
CFO and president of WBD’s Global Streaming and Games division JP Perrette allegedly told investors in a subsequent conference call that the update’s purpose was to ‘provide you with a clear and transparent number of true paying subscribers.’
The plaintiff then says this statement was false, ‘recognizing that the prior disclosures were neither ‘clear’ nor ‘transparent.”
Rosen Law Firm, an investor rights law firm based out of both New York and Philadelphia, is heading the case.