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AT&T Announces Spinoff and Merger of WarnerMedia With Discovery in $43 Billion Deal

The new entity, a streaming media giant, could be valued as high as $150 billion.

Video source: YouTube, AT&T

AT&T Inc (NYSE: T) announced Monday that WarnerMedia LLC and Discovery Inc (Nasdaq: DISCA) are merging to form a new company that will become one of the largest media businesses in the US. 

Under the agreement, AT&T will effectively unwind its $85 million acquisition of Time Warner, which closed three years ago, to form a new streaming giant with Discovery.

The new entity, separate from AT&T, could be valued as high as $150 billion, including debt, according to The Financial Times

AT&T said it would receive $43 billion in a combination of cash, debt and WarnerMedia’s retention of debt. It also said AT&T’s shareholders would receive stock representing 71% of the new company, while Discovery shareholders would own 29%.

WarnerMedia currently owns properties including CNN, TBS, TNT, HBO and Warner Bros. Pictures, and Discovery’s networks include Discovery Channel, Animal Planet, TLC, HGTV and The Food Network.

Discovery president and chief executive officer David Zaslav will lead the new company, which will have a new name announced soon, AT&T said. Its board will consist of 13 members, of which seven will be appointed by AT&T and six selected by Discovery.

As the streaming world becomes increasingly crowded, AT&T believes the new company will be better positioned to compete against platforms like Netflix and The Walt Disney Company’s Disney+

HBO Max, AT&T's flagship streaming service that launched last year, has around 64 million subscribers worldwide and Discovery+, which debuted in January, has about 15 million paying subscribers, according to CNBC

By contrast, Netflix has around 208 million paid subscribers worldwide, while Disney+ recently surpassed 100 million paying customers.

On Monday, AT&T chief executive officer John Stankey told reporters the combined company will set itself apart from the pack by offering a combination of sports and news, along with entertainment. 

The new company’s goal, Zaslav said, is to reach up to 400 million subscribers across the world.

The deal is expected to close in the middle of 2022, according to AT&T.

In a statement, Stankey said, “This agreement unites two entertainment leaders with complementary content strengths and positions the new company to be one of the leading global direct-to-consumer streaming platforms.”

“It will support the fantastic growth and international launch of HBO Max with Discovery’s global footprint and create efficiencies which can be re-invested in producing more great content to give consumers what they want,” Stankey added.

The announced transaction reverses AT&T’s years-long plan to combine content and distribution in a vertically integrated company, CNBC noted.

Earlier this year, AT&T also struck a deal to carve out its satellite business DirecTV at a significant loss from the 2015 purchase price.  

On Monday, Stankey also said he believes the deal would help AT&T refocus.

“For AT&T shareholders, this is an opportunity to unlock value and be one of the best capitalized broadband companies, focused on investing in 5G and fiber to meet substantial, long-term demand for connectivity,” he said.


Source: Equities News

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