The Ohio Attorney General has filed a motion in federal court requesting to have two of the state’s pension systems appointed as lead plaintiff in a proposed class-action lawsuit against Warner Bros Discovery (WBD) and two of its executives on behalf of several shareholders.
In a statement this week, the office of Ohio Attorney General Dave Yost said purportedly misleading information offered by WBD executives before and after the company's merger with AT&T's WarnerMedia caused the Ohio Public Employees Retirement System and the State Teachers' Retirement System to lose more than $25 million.
The motion filed last week asks for the court to recognize the Ohio pension systems as the lead plaintiff in the lawsuit that was first brought against WBD and its executives, CEO David Zaslav and CFO Gunnar Wiedenfels, in September by a police pension board in Illinois.
The original lawsuit claimed Zaslav and Wiedenfels withheld information about the state of the WarnerMedia business in order to gain approval for the merger. Among other things, Discovery executives were said to have information that indicated WarnerMedia — which was owned by AT&T — had invested in unproductive and failing businesses and over-inflated subscriber numbers for its HBO Max streaming service by about 10 million customers.
"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," Yost's office said in a statement, using the initialisms for the Ohio pension systems.
"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," the statement continued.
Investors began to realize the state of the WarnerMedia business after the merger was finalized. One of the company's first orders of business post-merger was to shut down CNN+, a fledgling streaming service that WarnerMedia had spent around $300 million to build. The service lasted about a month.
The company also shelved a mostly-finished superhero film, reduced original content at its Turner cable channels, removed shows from its HBO Max service, and laid off workers across its various divisions. Last month, Zaslav said a restructuring of its business would result in a write-down of between $3.2 billion and $4.3 billion.
By the time the write-down was announced, "the securities violations had taken their toll on investors," Yost's office affirmed, noting that WBD's stock had plunged more than 52% from the first day of the merger to September 23.
The proposed class action lawsuit is seeking to collect compensatory and rescissory damages based on behalf of WBD's shareholders based on the alleged securities violations.
A spokesperson for WBD did not return a request seeking comment by press time.
Disclosure: The author of this story owns a small amount of stock in Warner Bros Discovery