AT&T to spin out WarnerMedia in combination with Discovery, Inc.

May 17, 2021
The new media company would own such brands as HBO, Warner Bros., Discovery, DC Comics, CNN, Cartoon Network, HGTV, Food Network, the Turner Networks, TNT, TBS, Eurosport, Magnolia, TLC, Animal Planet, ID, and others.

AT&T Inc. (NYSE:T) and Discovery, Inc. (NASDAQ: DISCA, DISCB, DISCK) say they have agreed to a deal that would see the former sell its WarnerMedia entertainment, sports, and news business to Discovery. The deal, structured as an all-stock, Reverse Morris Trust transaction, would see AT&T receive $43 billion (subject to adjustment) in a combination of cash, debt securities, and WarnerMedia's retention of certain debt. The transaction is anticipated to close in mid-2022, subject to approval by Discovery shareholders and customary closing conditions, including receipt of regulatory approvals.

The shareholders of AT&T, whose approval is not required to close the deal, would receive stock representing 71% of the new company; Discovery shareholders would own the rest. The boards of Directors of both companies have approved the transaction.

Discovery President and CEO David Zaslav will lead the proposed new company with the help of a team comprising operational and creative leaders from both AT&T and Discovery. The new company's board of directors will consist of 13 members, 7 initially appointed by AT&T, including the chairperson of the board; Discovery will initially appoint 6 members, including Zaslav.

The new media company would own such brands as HBO, Warner Bros., Discovery, DC Comics, CNN, Cartoon Network, HGTV, Food Network, the Turner Networks, TNT, TBS, Eurosport, Magnolia, TLC, Animal Planet, ID, and others. It also would control the HBO Max and discovery+ streaming services.

Assuming the deal is consummated, AT&T will get out of the content business and focus on fixed and mobile services provision, a move several analysts as well as activist investors Elliott Investment Management have long advised (see, for example, “Activist investment firm Elliott Management targets AT&T” and "AT&T strikes deal with Elliott Management, announces three-year financial guidance, capital allocation plan"). Elliott praised the agreement’s announcement. "It has been a transformational year at AT&T year since John Stankey took over as CEO, and today's announcement represents another impressive step in the company's recent evolution,” read a statement attributed to Managing Partner Jesse Cohn and Portfolio Manager Marc Steinberg. “AT&T has now executed on its promise to streamline operations and re-focus on its core businesses, all while improving operational execution, enhancing its financial position and advancing its corporate governance. As investors, Elliott supports AT&T in its efforts to best position the company for future success."

"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,” commented Stankey. “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. AT&T shareholders will retain their stake in our leading communications company that comes with an attractive dividend. Plus, they will get a stake in the new company, a global media leader that can build one of the top streaming platforms in the world."

The announcement comes shortly after Verizon revealed plans to shed its Verizon Media assets in a similar move, albeit of much smaller scale (see “Verizon to sell Verizon Media to Apollo Funds”).

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