AT&T's WarnerMedia, Discovery to merge in $130-bn blockbuster deal

AT&T agreed to spin off its media operations in a deal with Discovery that will create a new entertainment company, merging assets ranging from CNN and HBO to HGTV and the Food Network.
 
The transaction values the combined entity at about $130 billion including debt, based on WarnerMedia’s estimated enterprise value of more than $90 billion.
 
AT&T will receive $43 billion in cash, debt securities and debt retention, with its shareholders getting stock representing 71 per cent of the new company, the companies said in a statement Monday. The deal is structured as a tax-advantaged Reverse Morris Trust.

 

Discovery Chief Executive Officer David Zaslav is to lead the new entity. WarnerMedia CEO Jason Kilar’s future is to be determined, AT&T CEO John Stankey said on a conference call discussing the deal.
 
The plan, first reported by Bloomberg News, would combine Discovery’s reality-TV empire with AT&T’s vast media holdings, creating a formidable competitor to Netflix Inc. and Walt Disney Co. It marks a retreat for AT&T’s entertainment-industry ambitions after years of working to assemble telecom and media assets under one roof. AT&T, now the world’s most heavily indebted non financial company, gained some of the biggest brands in entertainment through its $85 billion acquisition of Time Warner Inc., completed in 2018.

 
The transaction includes all of AT&T’s WarnerMedia operations. In addition to CNN and HBO, WarnerMedia owns Cartoon Network, TBS, TNT and the Warner Bros. studio. Discovery, backed by cable mogul John Malone, controls networks such as TLC and Animal Planet. The new company’s name will be announced this week, Zaslav said on the conference call.
 
Discovery shares jumped as much as 11 per cent in New York but were little changed at $35.82 at 10:29 a.m. AT&T was up 3.5 per cent to $33.38.
 
“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,” Stankey said in the statement. “It will support the fantastic growth and international launch of HBO Max with Discovery’s global footprint and create efficiencies which can be reinvested in producing more great content to give consumers what they want.”

 
In shedding the assets, Stankey has been unwinding an acquisition spree undertaken by predecessor Randall Stephenson. The deal underscores the difficulty telecom companies have had finding a payoff from their media operations. Verizon Communications Inc. announced its own plan to slim down earlier this month. The company agreed to sell its media division to Apollo Global Management Inc. for $5 billion, a move that will offload online brands like AOL and Yahoo.
 
“I expect AT&T is going to be the No. 1 telecom and communications company in the world,” Zaslav said on the conference call. And the new combined entity “will not stop until we have the No. 1 global entertainment company, reaching people on every device.”

 
Though he has questioned in the past whether news content was a good fit with Discovery, Zaslav said the new company would keep CNN and “lean into news.” Kilar, a streaming-industry veteran who helped found Hulu, has been running WarnerMedia for the past year. At a recent investor conference, he defended the need for the business to be owned by AT&T, saying the telecom company had invested billions of dollars in HBO Max and broken down silos within the company to create a single operating unit. He added that AT&T’s phone and broadband customers were less likely to cancel if they got HBO Max, and many of HBO Max’s subscribers were AT&T customers.

 
Discovery shares experienced a meteoric rally earlier this year but had lost more than half their value since Bill Hwang’s Archegos was forced to liquidate its positions. The shares remained up 18 per cent for the year through the end of last week. That gave the company a market value of almost $24 billion. AT&T, meanwhile, gained 12 per cent in 2021, giving it a market capitalization of $230 billion.