Deal allows AT&T to shed some debt—and take a big step forward in 5G race.
AT&T and Discovery announced this week that the companies will join forces to create a standalone global entertainment enterprise. The companies will combine WarnerMedia’s (AT&T) entertainment, sports and news assets with Discovery’s non-fiction, international entertainment and sports businesses.
The deal will combine HBO, Warner Bros. studios, CNN and additional cable networks with a number of Discovery’s reality-based cable channels, including Oprah Winfrey’s OWN, HGTV, the Food Network and Animal Planet.
Under the agreement, which was structured as an all-stock, Reverse Morris Trust transaction, AT&T would receive $43 billion in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt and AT&T’s shareholders would receive stock representing 71% of the new company. Meanwhile, Discovery shareholders would own 29% of the new enterprise. Both AT&T and Discovery’s Boards of Directors have approved the deal.
“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,” AT&T Chief Executive John Stankey said in a statement. “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.”
“During my many conversations with John, we always come back to the same simple and powerful strategic principle: these assets are better and more valuable together,” Discovery Chief Executive David Zaslav said in a statement. “It is super exciting to combine such historic brands, world class journalism and iconic franchises under one roof and unlock so much value and opportunity. With a library of cherished IP, dynamite management teams and global expertise in every market in the world, we believe everyone wins—consumers with more diverse choices, talent and storytellers with more resources and compelling pathways to larger audiences, and shareholders with a globally scaled growth company committed to a strong balance sheet that is better positioned to compete with the world’s largest streamers.
How this deal benefits AT&T
Merging with Discovery gives AT&T a boost from an entertainment perspective. WarnerMedia expanded its content library significantly now that it will have access to Discovery’s programming. The deal also yields another opportunity for AT&T however—to solidify its place in its 5G race with fellow wireless carriers T-Mobile and Verizon. The capital the carrier will gain in this merger will allow it to become one of the better-funded 5G and fiber broadband companies in the United States. AT&T will also be able to invest more in growth areas like mobile and fixed broadband.
The carrier expects annual capital expenditures of $24 billion after the transaction closes. AT&T also plans for its 5G C-band network to cover 200 million people in the United States by the end of 2023, and to expand its fiber footprint to cover 30 million locations by the end of 2025. The cash and bonds AT&T will receive when the deal closes should help it shed some of the debt it assumed as it expanded its 5G technology and fought to keep its customers from going to a rival carrier, according to The New York Times.
“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,” Stankey said. “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.”
“We will build a new chapter together with the creative and talented WarnerMedia team and these incredible assets built on a nearly 100-year legacy of the most wonderful storytelling in the world,” Zaslav said. “That will be our singular mission: to focus on telling the most amazing stories and have a ton of fun doing it.”
Joe Dyton can be reached at joed@fifthgenmedia.com.
