AT&T to spin off WarnerMedia at Discovery closing

Feb. 1, 2022
The transaction, which will spin off 100% of AT&T’s interest in WarnerMedia to AT&T’s existing shareholders in a pro rata distribution followed by the merger of WarnerMedia with Discovery, is expected to close in the second quarter of 2022.

AT&T, Inc. (NYSE: T) today announced that its board of directors has determined to spin off AT&T’s interest in WarnerMedia in connection with the company's previously announced transaction with Discovery, Inc. (NASDAQ: DISCA, DISCB, DISCK).

AT&T said its shareholders will benefit after the transaction's closing from ownership of approximately 71% of WBD, a top global media company with a broad portfolio of brands that’s positioned to be a global direct-to-consumer leader. WBD will combine WarnerMedia’s premium entertainment, sports and news assets with Discovery's nonfiction and international entertainment and sports businesses to create a standalone global entertainment company.

Per a press release, an attractive annual dividend of $1.11 per AT&T share, or about $8 billion in aggregate is expected, reflecting a target payout ratio in the first full year after close of 40%. The release added:

"Consistent with AT&T’s guidance when it announced the transaction in May 2021, the expected annual dividend per share is being changed from $2.08 to $1.11 to account for the distribution of WarnerMedia to AT&T shareholders and support AT&T’s plans to step-up investment in its growth areas of 5G and fiber. With an expected annual dividend of $1.11 per share, AT&T will continue to deliver an attractive dividend yield and be among the highest dividend yield payers in corporate America — estimated in the mid-90th percentile."

AT&T emphasized that the transaction creates substantial value opportunity for its shareholders through AT&T’s expected increased investment in 5G and fiber. AT&T expects its 5G C-band network will cover 200 million people in the U.S. by year-end 2023. Further, AT&T said it plans to expand its fiber footprint to cover 30 million customer locations by year-end 2025.

AT&T said it expects to use the estimated $43 billion (subject to adjustments) in proceeds from the transaction "to deleverage and position the company as one of the best capitalized 5G and fiber broadband companies in the United States." AT&T expects a Net Debt to Adjusted EBITDA ratio3 of 2.5x by year end 2023.

The stakeholders noted that the combination of WarnerMedia and Discovery will create value for WBD shareholders by bringing together strong leadership teams, world-class content creators, and high-quality series and film libraries in the media business. As previously announced, Discovery President and CEO David Zaslav will lead WBD with a best-in-class management team and operational and creative leadership from both companies. The new company’s board of directors will consist of 13 members, seven initially appointed by AT&T, including the chairperson of the board; Discovery has designated six members, including Zaslav. 

Transaction notes

“In evaluating the form of distribution, we were guided by one objective — executing the transaction in the most seamless manner possible to support long-term value generation,” commented AT&T CEO John Stankey. “We are confident the spin-off achieves that objective because it’s simple, efficient and results in AT&T shareholders owning shares of both companies, each of which will have the ability to drive better returns in a manner consistent with their respective market opportunities.

“We believe that the remaining AT&T and the new WBD are two equities that the market will want to own and the markets to support those equities will develop,” Stankey said. “Rather than try to account for market volatility in the near-term and decide where to apportion value in the process of doing an exchange of shares, the spin-off distribution will let the market do what markets do best. We are confident both equities will soon be valued on the solid fundamentals and attractive prospects they represent.”

Following the closing of the transaction, the WBD common stock is expected to be listed on the NASDAQ Global Select Market under the ticker “WBD.” In connection with the transaction, all classes of shares of Discovery capital stock will be converted and reclassified into common shares of WBD with one vote per share. AT&T will continue to trade on the NYSE under the ticker “T.”

AT&T said transaction provides an opportunity to deleverage its balance sheet and capitalize on the longer-term demand for connectivity while unlocking value for shareholders in its media assets on a tax-efficient basis and creating through WBD a stronger global competitor in streaming and digital entertainment.

AT&T will host a virtual investor conference on March 11 at which it will provide additional insight and expectations for financial and operational performance of AT&T’s Communications segment following the close of the pending WarnerMedia transaction, which is expected in the second quarter.

About the Author

BTR Staff

EDITORIAL
STEPHEN HARDY
Editorial Director and Associate Publisher
[email protected]
MATT VINCENT
Senior Editor
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SALES
KRISTINE COLLINS
Business Solutions Manager
(312) 350-0452
[email protected]
JEAN LAUTER
Business Solutions Manager
(516) 695-3899
[email protected]

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