AT&T said it struck a deal with media company Discovery to combine WarnerMedia and Discovery’s assets into a “stand-alone global entertainment company.” AT&T would receive $43 billion in the all-stock transaction through “a combination of cash, debt securities, and WarnerMedia’s retention of certain debt.” AT&T shareholders would receive stock in 71 percent of the new media company, while Discovery shareholders would own the other 29 percent.
AT&T expects to take a full year to complete the spinoff and combination with Discovery. “The transaction is anticipated to close in mid-2022, subject to approval by Discovery shareholders and customary closing conditions, including receipt of regulatory approvals,” AT&T said.
AT&T says it will shift its own focus back to broadband.
“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 CEO John Stankey said. “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.”
The as-yet-unnamed WarnerMedia/Discovery company will consist of more than 100 brands, including “HBO, Warner Bros., Discovery, DC Comics, CNN, Cartoon Network, HGTV, Food Network, the Turner Networks, TNT, TBS, Eurosport, Magnolia, TLC, Animal Planet, ID, and many more,” AT&T said.
Monday’s AT&T announcement comes just two weeks after Verizon said it had agreed to sell Yahoo and AOL for $5 billion to private-equity firm Apollo Global Management. The telecom giants’ bets on the media business haven’t paid off as they hoped, but AT&T’s investment in media was much bigger than Verizon’s.
Yesterday’s announcement “is an admission that putting a large content asset with a wireless phone company had few long-lasting synergies,” CNBC wrote. “If anything, WarnerMedia became an albatross on AT&T shares, which have underperformed Verizon and T-Mobile since the deal’s completion date on June 14, 2018.”
AT&T’s Time Warner and DirecTV acquisitions were both made under Stankey’s predecessor as CEO, Randall Stephenson.
AT&T eliminated about 45,000 jobs across its media and telecom divisions after buying Time Warner. AT&T had 273,210 employees immediately after buying Time Warner in mid-2018 and just 228,470 as of March 31, 2021.
Stephenson had claimed that AT&T would create “7,000 jobs of people putting fiber in [the] ground” in exchange for a big corporate tax cut. AT&T instead continued laying off employees, hurting its ability to expand its fiber network and maintain its legacy copper network. A report commissioned by the California state government found that AT&T let its copper phone network deteriorate through neglect, especially in low-income communities and areas without substantial competition, despite raising its phone prices by 152.6 percent over 12 years.
With AT&T retaining its core telecom business, the company said the deal “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.” With $43 billion coming back to AT&T, the telco said it will be “one of the best capitalized 5G and fiber broadband companies in the United States.”
The WarnerMedia/Discovery company “will 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 deal announcement said. Stankey said that the deal “will support the fantastic growth and international launch of HBO Max with Discovery’s global footprint and create efficiencies [that] can be reinvested in producing more great content to give consumers what they want.”