An Illinois police pension board is taking Warner Bros. to court after allegedly "misleading" shareholders prior to the company's merger with Discovery.
Warner Bros. and Discovery are running into more problems. After shelving Batgirl, removing 68 titles from HBO Max out of the blue, canceling series and films that highlighted underrepresented communities, and laying off staff at HBO Max, the merger has been bumpy for the company.
Unfortunately for Warner Bros. Discovery, its situation just got worse.
According to The Wrap, a lawsuit was filed last Friday in New York on behalf of the Collinsville Police Pension Board, an Illinois-based shareholder of Warner Bros. Discovery stock, which it accepted in trade for its pre-merger Class C common Discovery shares.
The lawsuit names Warner Bros. Discovery, CEO David Zaslav, and CFO Gunnar Wiedenfels as defendants.
The lawsuit says “adverse information” was being kept hidden from shareholders, and also claims that the merging companies overstated the subscriber base for HBO Max:
WarnerMedia was improvidently concentrating its investments in streaming and ignoring its other business lines … [and] 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.
The lawsuit is seeking a jury trial for monetary damages, alleging three separate Securities and Exchange Commission violations.
Discovery and the WarnerMedia division of AT&T announced their merger plans in May 2021 and closed in April 2022. Unfortunately, the lawsuit found that “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.”
It seems that the lawsuit is suggesting that Warner changes its numbers to look better to potential buyers, like Discovery, who could help the company out of its debt. If the lawsuit favors the plaintiffs' case, Warner Bros. Discovery could owe quite a bit of money to its shareholders.
Let us know what your thoughts on the lawsuit are in the comments.