Update: The deal has been confirmed
The stock price of Discovery Communications (NASDAQ: DISCA) increased by over 12% pre-market. Investors are responding positively to reports that AT&T is planning to merge its media assets with Discovery as part of a tax-friendly deal. While the deal could be announced as early as this week, it could also fall through since it is reportedly not finalized yet.
This deal could be structured as a Reverse Morris Trust — which is a merger with another company that has a tax-free structure. By merging their media assets, the combined operations would be more competitive against dominant streaming services like Netflix and Disney+. AT&T’s media assets especially grew through the acquisition of Time Warner in 2018. The new company could be headed by Discovery CEO David Zaslav or WarnerMedia CEO Jason Kilar.
With the acquisition of WarnerMedia unit, AT&T currently owns media brands like CNN, HBO, Cartoon Network, TBS, and TNT. And the company also runs networks like HGTV, Food Network, TLC, and Animal Planet. Under the leadership of Zaslav, Discovery has ramped up its content operations through acquisitions such as the purchase of HGTV’s parent company Scripps Networks Interactive.
AT&T CEO John Stankey has been aggressively cutting costs in areas of the company in order to focus on core businesses. A few months ago, Stanley oversaw a deal to spin off DirecTV through a deal with private equity firm TPG. And AT&T sold Crunchyroll for $1.2 billion in a deal with Sony. Plus AT&T also sold off a stake in Hulu as well.
AT&T’s largest rival Verizon is also pursuing a similar strategy. For example, Verizon recently sold off the VerizonMedia operations — which included AOL and Yahoo — properties to Apollo Global Management for $5 billion.
Discovery and AT&T have recently deployed their own high-profile streaming services. Discovery launched a service called Discovery+, which offers programming that airs on HGTV, Food Network, TLC, Investigation Discovery, Animal Planet, Travel Channel, and Discovery Channel. And AT&T’s WarnerMedia operates HBO Max, a streaming service with over 44 million subscribers as of last month.
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