AT&T’s WarnerMedia Combining With Discovery In $43 Billion Deal

By Amit Chowdhry ● May 17, 2021
  • AT&T and WarnerMedia announced a definitive agreement to combine WarnerMedia’s content offerings with Discovery. These are the details.

Today AT&T Inc. (NYSE: T) and Discovery, Inc. (NASDAQ: DISCA, DISCB, DISCK) announced a definitive agreement to combine WarnerMedia’s entertainment, sports, and news assets with Discovery’s leading nonfiction and international entertainment and sports businesses to create a premier, standalone global entertainment company.

Under the terms of the deal, which is structured as an all-stock Reverse Morris Trust transaction — AT&T would receive $43 billion (subject to adjustment) 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; Discovery shareholders would own 29% of the new company. The Boards of Directors of AT&T and Discovery both have approved the transaction.

The companies expect the transaction will create substantial value for AT&T and Discovery shareholders by:

— Bringing together strong leadership teams, content creators, and high-quality series and film libraries in the media business.

— Accelerating both companies’ plans for leading direct-to-consumer (DTC) streaming services for consumers.

— Uniting complementary and diverse content strengths with a broad appeal.

— Forming a new company that will have significant scale and investment resources with projected 2023 revenue of approximately $52 billion, adjusted EBITDA of approximately $14 billion, and an industry-leading Free Cash Flow conversion rate of approximately 60%.

— Creating at least $3 billion in expected cost synergies annually for the new company to increase its investment in content and digital innovation along with scaling its global DTC business.

For AT&T and its shareholders, this deal provides an opportunity to unlock value in its media assets and to better position the media business to take advantage of the attractive DTC trends in the industry. And the transaction allows the company to better capitalize on the longer-term demand for connectivity:

— AT&T shareholders participate in a leading media company with a broad global portfolio of brands, tremendous DTC potential, and strengthened combined assets.

— Creates substantial value opportunity for AT&T shareholders through stepped-up investment in growth areas: mobile and fixed broadband.

— The capital structure improvement after closing will position AT&T as one of the best capitalized 5G and fiber broadband companies in the United States.

— Results in two independent companies – one broadband connectivity and the other media – to sharpen the investment focus and attract the best investor base for each company.

The new company is going to compete globally in the fast-growing direct-to-consumer business — bringing compelling content to DTC subscribers across its portfolio, including HBO Max and the recently launched discovery+.  And the deal will combine WarnerMedia’s storied content library of popular and valuable IP with Discovery’s global footprint, trove of local-language content and deep regional expertise across more than 200 countries and territories.  The new company is going to be able to invest in more original content for its streaming services, enhance the programming options across its global linear pay TV and broadcast channels, and offer more innovative video experiences and consumer choices.

The companies announced that Discovery President and CEO David Zaslav will lead the proposed new company with a strong management team and top operational and creative leadership from both companies. And Discovery’s current multiple classes of shares will be consolidated to a single class with one vote per share. 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 is going to initially appoint 6 members, including CEO David Zaslav.

The combination is going to be executed through a Reverse Morris Trust, under which WarnerMedia will be spun or split off to AT&T’s shareholders via dividend or through an exchange offer or a combination of both and simultaneously combined with Discovery. And the deal is expected to be tax-free to AT&T and AT&T’s shareholders.

In connection with the spin-off (or split-off of WarnerMedia), AT&T will receive $43 billion (subject to adjustment) in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt. And the new company expects to maintain investment grade rating and utilize the significant cash flow of the combined company to rapidly de-lever to approximately 3.0x within 24 months, and to target a new, longer term gross leverage target of 2.5x-3.0x. And WarnerMedia has secured fully committed financing from JPMorgan Chase Bank, N.A. and affiliates of Goldman Sachs & Co. LLC for the purposes of funding the distribution.

The deal is anticipated to close in mid-2022, subject to approval by Discovery shareholders and customary closing conditions, including receipt of regulatory approvals. No vote is required from AT&T shareholders. And agreements are in place with Dr. John Malone and Advance to vote in favor of the transaction.


“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. 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.”

— John Stankey

“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.  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.  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.  That will be our singular mission: to focus on telling the most amazing stories and have a ton of fun doing it.”

— David Zaslav