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How Sudden Surge in Discovery Stock Nearly Upended WarnerMedia Deal

$43 billion merger was announced Monday

The $43 billion merger of Discovery and WarnerMedia announced on Monday nearly fell apart when Discovery’s stock price suddenly surged this spring, according to The New York Times.

Secret negotiations for the spin-off of WarnerMedia from AT&T and its merger with Discovery began in February, the New York Times reported. But beginning the end of the month, Discovery was one of several companies caught up in what amounts to a vast pump-and-dump scam involving a company called Archegos, which caused stock prices to jump with seemingly no explanation.

Eventually, Discovery’s value spiked nearly 60% — meaning the conditions under which initial talks for the merger began no longer existed.

Wrote the Times: “Discovery’s stock began to inexplicably rocket in February and March to $75 from $45 because of a convoluted trading scandal involving Archegos, a little-known private investment firm that bet big on Discovery and other companies via derivatives using billions in borrowed money.”

Given the circumstances, that spike didn’t last. By mid May Discovery’s share price had dropped back down to how it was when talks first began, and the result was the deal announced at the beginning of this week. The two sides managed to make a deal that gave 71 percent of the new company to AT&T shareholders and 29 percent to Discovery.

Assuming regulators approve, the new company — which has yet to be formally named — will officially come into existence in 2022.

The new company, valued at $130 billion, will create an entertainment goliath on par with Netflix and Disney, bringing Warner Bros., CNN, Turner and Discovery’s stable of nonfiction networks — not to mention two competing streaming services, Discovery+ and HBO Max, and myriad sports rights — under one roof. AT&T is expected to pocket $43 billion in the process.