Discovery Sued Over $43 Billion WarnerMedia Merger Structure

Two pension funds sued Discovery Inc. in Delaware, seeking internal files from the company as they eye a challenge to its planned $43 billion merger with AT&T Inc.'s WarnerMedia division, which Discovery shareholders voted to approve early Friday.

The separate lawsuits, filed in Delaware Chancery Court, involve claims that the transaction was engineered to divert deal value from Discovery’s public investors to an affiliate of media giant Advance Publications Inc. through “a substantial side payment” exploiting its multi-class capital structure.

The complaints were docketed late Thursday, on the eve of the investor vote that advanced the transaction early Friday. Their purpose, “in light of the imminent stockholder vote,” was “to eliminate any doubt” that the pension funds would have “continued standing” to seek records from the company.

Discovery didn’t immediately respond to a request for comment Friday. Advance, AT&T, and WarnerMedia aren’t named as defendants.

The suits, which don’t allege any wrongdoing outright, are short on details. They seek documents from Discovery under a state law giving corporate shareholders broad inspection rights if they credibly suspect wrongdoing. Records cases often reflect an attempt to drum up fiduciary breach claims.

Both pension funds—the Key West Police and Firefighters’ Pension Fund and the Bricklayers Pension Fund of Western Pennsylvania—hold stock in Discovery. A third records inspection suit was also filed under seal Thursday by an individual Discovery investor, likely over similar concerns.

Cause of Action: Section 220 of the Delaware General Corporation Law.

Relief: Disclosure of relevant company records; costs and fees.

Attorneys: The pension funds are represented by Bernstein Litowitz Berger & Grossmann LLP, Labaton Sucharow LLP, Friedman Oster & Tejtel PLLC, Kaskela Law LLC, and Alfred G. Yates Jr. of Pittsburgh. The individual investor is represented by Cooch & Taylor PA.

The case is Key W. Police & Firefighters’ Pension Fund v. Discovery Inc., Del. Ch., No. 2022-0227, complaint filed 3/10/22.