AT&T To Spin Off WarnerMedia, Merge It With Discovery

AT&T Inc. (NYSE:T) has confirmed a report that it was in talks to spin off WarnerMedia and merge it with Discovery Communications Inc. (NASDAQ:DISCA). Shares of both companies rose in early trading after the confirmation. Q1 2021 hedge fund letters, conferences and more AT&T to spin off WarnerMedia, combine with Discovery AT&T and Discovery announced […]
AT&T To Spin Off WarnerMedia, Merge It With Discovery
Image credit: AT&T [Public domain], via Wikimedia Commons via Valuewalk

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AT&T Inc. (NYSE:T) has confirmed a report that it was in talks to spin off WarnerMedia and merge it with Discovery Communications Inc. (NASDAQ:DISCA). Shares of both companies rose in early trading after the confirmation.

Q1 2021 hedge fund letters, conferences and more

AT&T to spin off WarnerMedia, combine with Discovery

AT&T and Discovery announced that they had reached a deal for the former to spin off WarnerMedia and combine it with Discovery. The announcement confirms what CNBC had reported on Sunday, which was that the two companies were in advanced talks about a deal that could be announced as early as today.

CNN, which will be included in the transaction, reports that the move combines two vast content collections, including the discover+ and HBO Max streaming services. Discovery CEO David Zaslav will be at the helm of the merged company. He said during a virtual press conference that he believes the two companies "fit together like a glove."

Benefits of the deal

Combining the two streaming content collections will enable the two companies to compete with Netflix, Inc. (NASDAQ:NFLX) and Disney+ more effectively. Additionally, it offers AT&T a way to unwind its acquisition of Time Warner in 2018, which resulted in WarnerMedia. The deal between AT&T and Discovery is expected to be completed in the middle of next year.

By spinning off WarnerMedia, AT&T will also be able to focus more on its broadband business and pay off its massive piles of debt. The company would receive about $43 billion in cash, debt securities and WarnerMedia's retention of some debt. Zaslov also said the combined company would start with $55 billion in debt.

AT&T shareholders will get 71% of the shares in the merged company, while Discovery shareholders will receive the other 29%.

Calls for such a deal

According to CNN, some well-known analysts on Wall Street had been predicting and pushing for such a move. AT&T struck a deal to carve out DirecTV earlier this year, taking a sizable loss on the 2015 purchase price. Verizon Communications Inc. (NYSE:VZ) also sold off its content producing asset this year, reaching an agreement to sell AOL and Yahoo for $5 billion.

Investors are more focused on streaming every year, and the media industry looks quite different today than it did a few years ago. AT&T CEO John Stankey told WarnerMedia staff members in a memo that we are "now in a world where relevance and future success will be tied to greater scale and growth globally."

He added that an investor base and access to capital are needed to be one of the best global media companies with deep creative assets." Zaslov and Stanley said today that they had been working on the deal for months.

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