In the Ohio Attorney General news release on November 28, 2022, Ohio Attorney General Dave Yost has filed a motion asking to be appointed lead plaintiff in a securities class-action lawsuit, claiming that Warner Bros. Discovery (“WBD”) deliberately misled investors during the merger of WarnerMedia and Discovery Inc., fueling $25.5 million in losses for the Ohio Public Employees Retirement System (“OPERS”) and State Teachers Retirement System (“STRS”)
The lawsuit states Warner Bros. Discovery and company executives David Zaslav and Gunnar Wiedenfels either knew or had access to adverse financial information about WarnerMedia but did not disclose it before the merger closed on April 8, 2022, as required by U.S. securities law.
The lawsuit further states that at the time of the merger, WarnerMedia was in financial disarray and intentionally hid that fact from Discovery stockholders. The company, it turned out, had overinvested in costly but unproductive business lines, inflated its subscriber numbers by up to 10 million with no regard to margins, and otherwise provided false financial information to Discovery stockholders. Had the true state of WarnerMedia’s business been disclosed, the merger consideration would have been significantly higher for OPERS, STRS and other Discovery stockholders.
WarnerMedia’s financial challenges prompted Zaslav, the new CEO of the combined company, to disclose shortly after the merger that WBD would shut down many of its money-losing business lines, forcing the company to materially and negatively adjust its budget and financial expectations because they were wildly unrealistic.
Later, on Oct. 24, 2022, – just two quarters removed from the merger – Zaslav announced that WBD would be forced to take a massive restructuring charge, writing down between $3.2 billion and $4.3 billion. By then, the securities violations had taken their toll on investors.
The lawsuit says that from April 11, 2022 – the first trading day after completion of the merger – to Sept. 23, 2022, the price of WBD’s common stock dropped 52.4% (from $24.78 per share to $11.79 per share) as the market became aware of the misrepresented and omitted facts. The decline erased more than $31 billion in WBD’s market capitalization.
To read this press release, click here.
Authors: Matthew John Markling and the McGown & Markling Team.
Note: This blog entry does not constitute – nor does it contain – legal advice. Legal jurisprudence is like the always-changing Midwestern weather. As a result, this single blog entry cannot substitute for consultation with a McGown & Markling attorney. If legal advice is needed with respect to a specific factual situation, please feel free to contact a McGown & Markling attorney.