AT&T and Discovery Combine Their Media Assets

AT&T and Discovery Combine Their Media Assets

AT&T Retreats From Entertainment

AT&T (T) and Discovery (DISCB) are combining their media assets in a $43 billion deal to create a new stand-alone public company. AT&T has recently been taking a number of steps to exit the entertainment industry. Earlier this year AT&T sold a 30% stake in DirectTV to the private equity firm TPG for $1.8 billion.

The new company, which AT&T and Discovery have not yet named, will be headed by David Zaslav, the current CEO of Discovery. It will hold around $55 billion in debt. AT&T shareholders will own 71% of the new company and Discovery shareholders will have a 29% ownership stake. AT&T will receive a combination of cash, debt, and stock when the deal closes.

More Competition Coming

Talks to combine AT&T’s Warner Media with Discovery have been ongoing for several months. The new company will be designed to take on streaming services including Netflix (NFLX), Amazon (AMZN), Disney+ (DIS), and Apple (AAPL). Combined, AT&T and Discovery spend $20 billion on content, which is higher than what Netflix spends.

It is not clear what the new company’s plans are for HBO Max and Discovery+, their standalone streaming services. They could remain separate or be combined to create a larger library of content.

A Smaller AT&T

AT&T plans to reduce its dividend to reflect its smaller size. The total annual payout will be between $8 billion and $8.6 billion, which is about half of what investors received in prior years. The deal will also reduce AT&T’s debt, which was $169 billion as of March.

The sale of the Warner Media assets unwinds AT&T’s $81 billion acquisition of Time Warner which occurred in 2018. Back then the US Justice Department was worried the combined company would harm competition in the pay-TV market. Even three years ago, analysts did not predict what a significant impact the internet would have on pay-TV, and that streaming would hurt pay-TV more than a combined AT&T and Time Warner. The media industry will be keeping a close watch on the deal as it unfolds.

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ABOUT Meg Richardson Meg Richardson is a writer specializing in markets, technology, and personal finance. She loves breaking down seemingly complex ideas and making them readable and interesting for everyone. She holds an MFA in writing from Columbia University. When she is not writing about finance, she enjoys running in Central Park and drawing cartoons.

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