AT&T Agrees to Merge Media Business With Discovery -- 2nd Update
By Drew FitzGerald
AT&T Inc. and Discovery Inc. reached a deal to combine their
media assets into a new publicly traded company, unwinding the
telecom company's big bet on entertainment after less than three
The new business, which isn't yet named, will be led by current
Discovery Chief Executive David Zaslav. The companies said
AT&T's Jason Kilar will retain his title as WarnerMedia CEO but
declined to say whether he would remain with the newly combined
company after it secures regulatory approval.
AT&T Chief Executive John Stankey said in an online news
conference Monday that he had been "contemplating the structure of
our business for some time" and eventually decided that the pairing
with Mr. Zaslav's company would benefit both parties.
Mr. Zaslav, a media mogul and longtime friend of WarnerMedia
executive and CNN boss Jeff Zucker, said the transaction came
together over several months of talks that included chats in the
Discovery chief's Greenwich Village brownstone.
Mr. Zaslav said the two media businesses already spend about $20
billion a year to produce new content. WarnerMedia owns cable
channels such as HBO, CNN, TNT and TBS as well as the Warner Bros.
television and film studio. Discovery has a portfolio that includes
its namesake network and HGTV.
Both companies also offer streaming video portals that compete
with larger on-demand services like Netflix Inc. and Walt Disney
Co.'s Disney+. The two CEOs declined to detail their long-term
plans for HBO Max and Discovery+, which could remain separate or be
combined into an even larger online video library.
Under the deal, AT&T shareholders will hold a 71% stake in
the new entity, while Discovery shareholders own a 29% stake. In
exchange, AT&T said it will receive $43 billion of cash, debt
securities and WarnerMedia's retention of certain debt.
AT&T also said it will adjust its dividend policy to reflect
the structure of the new media business. The company said it
expects an annual dividend payout ratio of 40% to 43% from more
than $20 billion of expected free cash flow.
The Dallas company spent about $15 billion last year on the
shareholder payouts, which many mom-and-pop investors have long
valued as a stable source of income.
AT&T reported $169 billion of net debt at the end of March,
a level that has troubled some investors worried about the
conglomerate's financial flexibility. Mr. Zaslav said the new media
business will hold a little over $55 billion of debt.
The transaction unwinds a hard-fought acquisition that AT&T
closed for about $81 billion in 2018 after beating a court
challenge by U.S. Justice Department officials, who argued that the
combination would hurt competition in the pay-TV market.
The telecom company at the time controlled the country's largest
pay-TV distribution network, mostly through DirecTV, before it
added one of the biggest cable channel owners.
The deal will complete AT&T's retreat from the media
business. Earlier this year the company reached an agreement with
private-equity firm TPG to shed a 30% stake in its DirecTV business
for $1.8 billion. AT&T had acquired DirecTV in 2015 for $49
billion, at the height of a pay-TV market that has since collapsed
due to cord-cutting subscribers.
AT&T, meanwhile, faces mounting demands on the wireless and
broadband networks that still generate most of its profits. The
company spent more than $23 billion on a recent Federal
Communications Commission auction of wireless licenses and will
need to spend tens of billions of dollars more in the coming years
to match investments by rivals Verizon Communications Inc. and
T-Mobile US Inc. in improving their networks.
AT&T on Monday said it would boost its planned capital
expenditures to about $24 billion once the transaction closes.
Executives earlier this year projected $18 billion of capital
spending in 2021.
The companies said they expect to close the transaction in
AT&T shares, down about 25% since mid-2016, rose more than
3% in premarket trading Monday after the deal was announced. Shares
of Discovery jumped more than 12%.
--Joe Flint, Ben Mullin and Dana Cimilluca contributed to this
Write to Drew FitzGerald at firstname.lastname@example.org
(END) Dow Jones Newswires
May 17, 2021 09:25 ET (13:25 GMT)
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