Ohio Takes Lead in $25.5 Million Suit Against Warner Bros. Discovery

Class-action lawsuit alleges company intentionally failed to disclose financial problems at WarnerMedia prior to merger.



Ohio Attorney General Dave Yost has filed a motion for funds from his state to be named lead plaintiffs in a securities class-action lawsuit alleging Warner Bros. Discovery deliberately misled investors and caused $25.5 million in losses for the Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio.

The lawsuit, originally filed in the U.S. District Court for the Southern District of New York as Collinsville Police Pension Board v. Discovery, Inc., centers around AT&T’s spin-off of WarnerMedia and that company’s subsequent merger with Discovery, Inc. in April. The suit alleges that Warner Bros. Discovery President and CEO David Zaslav and Chief Financial Officer Gunnar Wiedenfels (who each held the same position at Discovery, Inc., prior to the merger) either knew or had access to adverse financial information about WarnerMedia but did not disclose it, as required by law, prior to the closing of the merger.

According to the lawsuit, WarnerMedia was in financial disarray at the time of the merger and intentionally hid that fact from Discovery investors. The adverse information allegedly included that WarnerMedia’s HBO Max streaming business was not “viable” unless its high churn rate could be reversed; that AT&T was overinvesting in streaming content for WarnerMedia entertainment and that WarnerMedia had overstated the number of HBO Max subscribers by as many as 10 million.

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“Warner Bros. Discovery willfully withheld financial information that it was legally obligated to reveal for one highly self-serving reason – to ensure the merger’s approval,” Yost said in a statement. “In doing so, it created market distortions that cost Ohio’s pension systems and other institutional investors dearly.”

Yost claims that it was not until shortly after the merger that Zaslav disclosed that many of the company’s money-losing business lines would be closed. He later announced that due to those closures, the company would have to write down between $3.2 billion and $4.3 billion.

The lawsuit says that from April 11, which was the first trading day after the merger was completed, to Sept. 23, the price of Warner Bros. Discovery’s common stock plunged by more than 52%, going from $24.78 per share to $11.79, reducing its market capitalization by more than $31 billion.

In July, the Ohio attorney general’s office, representing the Ohio Public Employees Retirement System, was selected as lead plaintiff in another securities class-action case, against Facebook (now Meta), in the U.S. District Court of Northern California.

Warner Bros. Discovery did not respond to a request for comment.

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US Single-Premium Buy-Out Sales Set Record in Q3 ’22

U.S. single premium buy-out sales are poised to set new records for 2022, as the third quarter delivers $26.15 billion in buy-out transaction volume.


Rising interest rates and the high pension funding levels they drive are also driving higher levels of pension derisking in 2022.

Total U.S. single premium annuity risk transfer buy-out sales topped $26.15 billion in the third quarter of 2022, a new record high for the total volume recorded in a single quarter, according to new research released by LIMRA in its’ U.S. Group Annuity Risk Transfer Sales Survey.

The total represents a 66% increase over the $12.31 billion recorded in the second quarter 2022.  

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A group annuity risk transfer product, such as a pension buy-out, allows defined benefit plan sponsor to transfer all or a portion of its pension liability to an insurer. In doing so, the plan sponsor can remove all or some of the pension liability from its balance sheet and reduce the corresponding funded status volatility.

LIMRA forecasts that total buyout sales volume will surpass $50 billion in 2022, a significant increase from the $34.157 billion total transactional volume in 2021.

The total volume of buyouts and buy-ins so far in 2022, was $43.8 billion ($2.7 billion of which stems from buy-ins), up 73% from the same period in 2021. Though there were no buy-in transactions completed during the third quarter.

There has been a total of $41.12 billion in single-premium buyouts in 2022, 89% higher than the same period in 2021. The total volume within the first three quarters of 2022 surpassed any year’s full total for single-premium buyouts. In the third quarter, there were 145 total buyout contracts, covering a total of 342,870 plan participants, LIMRA reported.

“While several jumbo deals drove record sales, there were also a record number of contracts sold in the third quarter, signaling widespread industry growth,” said Mark Paracer, assistant research director at LIMRA annuity research. “Greater plan sponsor awareness and desire to de-risk their pension liabilities, rising interest rates and escalating costs to maintain plans are likely driving market expansion in the U.S. We expect these factors to continue to propel the U.S. market into 2023.”

Single premium buy-out assets reached $230.3 billion in the third quarter, up 27% from the prior year, while single premium buy-in assets were $6.65 billion, 1% higher than the third quarter of 2021. Combined, single premium assets were $236.9 billion in the third quarter, a 26% increase from the third quarter 2021 results.

Most single-premium buyouts occur in the third and fourth quarters in any given year. The second half of the calendar year accounted for 64% of all single-premium buyouts in 2018, 68% in 2019, 73% in 2020, and 82% of total volume in 2021, according LIMRA’s data.

 

Quarterly U.S. Single Premium Pension Buy-Out Sales

1Q16
$1,084
2Q16
$1,035
3Q16
$5,938
4Q16
$5,675
1Q17
$1,415
2Q17
$4,063
3Q17
$6,459
4Q17
$11,145
1Q18
$1,402
2Q18
$8,265
3Q18
$6,286
4Q18
$10,655
1Q19
$4,757
2Q19
$4,166
3Q19
$7,732
4Q19
$11,338
1Q20
$4,462
2Q20
$2,270
3Q20
$4,599
4Q20
$13,750
1Q21
$1,016
2Q21
$4,968
3Q21
$15,787
4Q21
$12,386
1Q22
$2,667
2Q22
$12,311
3Q22
$26,145
Source: U.S. Group Annuity Risk Transfer Study, LIMRA

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