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AT&T's WarnerMedia And Discovery To Combine

AT&T Inc. (T) and Discovery, Inc. (DISCA, DISCB,DISCK) announced a definitive agreement, under which WarnerMedia's premium entertainment, sports and news assets will be combined with Discovery's nonfiction and international entertainment and sports businesses.

The combination will create a new standalone company, which will be one of the largest global streaming players.

The agreement is structured as an all-stock, Reverse Morris Trust transaction, 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.

The transaction 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 would receive $43 billion, subject to adjustment, in a combination of cash, debt securities, and WarnerMedia's retention of certain debt.

The transaction is anticipated to close in mid-2022, subject to approval by Discovery shareholders and customary closing conditions, including receipt of regulatory approvals.

In the new entertainment company, AT&T's shareholders would receive stock representing 71 percent, while Discovery shareholders would own 29 percent of the new company. The Boards of Directors of both AT&T and Discovery have approved the transaction.

Discovery President & CEO David Zaslav will lead the proposed new company, while executives from both companies will take key leadership roles. 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 will initially appoint 6 members, including Zaslav. The companies expect the transaction will create substantial value for AT&T and Discovery shareholders.

The transaction 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 expected to have significant scale and investment resources with projected 2023 Revenue of approximately $52 billion, adjusted EBITDA of approximately $14 billion, and a Free Cash Flow conversion rate of approximately 60 percent.

It is expected that the new company will 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+.

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