AT&T Inc. (NYSE:T) and Discovery, Inc. (NASDAQ: DISCA, DISCB, DISCK) Monday announced a definitive agreement to combine WarnerMedia’s premium entertainment, sports and news assets with Discovery’s nonfiction and international entertainment and sports businesses to create a standalone global entertainment company.
Under the terms of the agreement, 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. AT&T’s shareholders would receive stock representing 71 percent of the new company; Discovery shareholders would own 29 percent of the new entity. The Boards of Directors of both AT&T and Discovery have approved the transaction.
John Stankey, AT&T CEO said, “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 ready to meet substantial, long-term demand for connectivity.”
Activist investor Elliott Investment Management, an AT&T shareholder who had been critical of the carrier’s media strategy, applauded the deal. Elliott issued a statement in 2019 following the Warner acquisition, that AT&T was losing focus of its core business, telecom.
“It has been a transformational year at AT&T since John Stankey took over as CEO, and today’s announcement represents another impressive step in the company’s recent evolution,” Elliott’s Jesse Cohn and Marc Steinberg said. “AT&T has now executed on its promise to streamline operations and re-focus on its core businesses, all while improving operational execution, enhancing its financial position and advancing its corporate governance. As investors, Elliott supports AT&T in its efforts to best position the company for future success,” Cohn and Steinberg said in a joint statement.
The parties say they’re forming a new company that will have significant scale and investment resources with projected 2023 revenue of approximately $52 billion and adjusted EBITDA of approximately $14 billion. They predict the new company will have a Free Cash Flow conversion rate of approximately 60 percent, which is expected to create at least $3 billion in cost synergies annually for the new company to increase its investment in content and digital innovation, and to scale its global DTC business.
The pure play content company will own one of the deepest libraries in the world, according to the parties, with nearly 200,000 hours of programming, and will bring together over 100 brands under one global portfolio, 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 more. The new company’s Board of Directors will consist of 13 members, seven initially appointed by AT&T, including the chairperson of the board; Discovery will initially appoint six members, including CEO David Zaslav.