Filed by: AT&T Inc.
Commission File No.: 001-08610
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: Discovery, Inc. (Commission File No.: 001-34177)
The following are excerpts from the transcript of a press conference by AT&T Inc. at the JP Morgan Global Technology, Media and Communications Conference
(Virtual) on May 24, 2021:
Philip A. Cusick - JPMorgan Chase & Co, Research DivisionMD and Senior Analyst
So you had a pretty big announcement last week. Help us think about what changed that media went from being such an important part of AT&T when
youve spoken recently to it being a better decision to partner going forward.
John T. Stankey - AT&T Inc.CEO, President &
Director
Well, obviously, it was a busy week last week and a noisy week. Im hoping for a little quieter week this week, if we can figure it out. I
think the most fundamental thing, as I shared last week is, when you think about when we started down this journey, probably in 16/15 time frame, as we were thinking about whether or not we should actually vertically integrate into
content, we had a strong belief that we can help our domestic connectivity business significantly. And that started us down the path of the direct-to-consumer evolution.
And I think, frankly, we got a long way down that path and made a lot of good progress. And were, in fact, seeing the benefits of what happens with lower churn. Our distribution muscle, that distribution muscle helps the media assets that we
have, and we ultimately get the economic benefit of owning and operating that as we push it through.
I think realistically, HBO Max would not be where it
is today if not for the strength of the 2 combined companies, what AT&T was able to bring both in distribution as well as some of the economic clout and market clout to be able to normalize agreements and get the product and service off the
mark, and of course, what WarnerMedia brought in, in terms of a great library and wonderful skills in media and content development, storytelling.
But
having said that, whats become clear is that the opportunity for our direct relationships with customers and media is truly going to be a global opportunity. And our connectivity business, as you know, has kind of capped into the United States
for the most part. And as a result of that, when you start looking at the opportunity to grow a fantastic subscriber base, we kind of looked at this and say that its time to unleash the media assets to go and seize multi-hundred billion-dollar
opportunity to become one of the premier assets for distributing content.
And in order to do that, its a little bit of a different shareholder base
and investor base than what we might typically have within the communications company. And as a result of that, structuring this asset in a way that: number one, aligns the shareholder base; and of course, number two, it gets us in a position where
that asset is even better positioned to be successful moving forward on a global basis with the combination with Discovery. Its really attractive in that theres some synergies that can be brought back from the 2 businesses that can help
fund this growth in the new business. Its a deeper content library that can carry forward. And it brings exactly, as I said, some of that heft in the international side of things thats going to be necessary to scale up.
And at the same time, the media company, ultimately, as you know, we did some changes in the capital structure there. I not only expect a little bit of value
unlock to occur in the media asset. But I think in the communications asset, we should expect the same type of thing to occur.
Theres been concerns
about the balance sheet. When $43 billion comes back on to the balance sheet to pay down debt, I think a little bit of that overhang starts to ease. And I would expect our multiples to start to improve relative to the peer group. Maybe as we
demonstrate operationally that we can be consistent, ultimately match the peer group over time. And I think thats going to be good for shareholders.
And as you know, we made a decision that we were going to size the dividend to the reality that the company was going to be a little over 35%, about 35%
smaller after the WarnerMedia spin out and the DIRECTV spinout. And we wont do that until we close the WarnerMedia transaction. But when we do that, thats going to allow us to take some of that cash and reinvest it back in the business
at really attractive returns, both in our wireless business and pushing further in our broadband business, but still paying of what I believe is a very, very attractive dividend. I think its
really important to understand that well probably be in the $8 billion to $9 billion of cash a year put out to the dividend. We expect
thats going to put us in the upper 95 percentile of the 95 percentile of yield for dividend yield investors. We think thats a really comfortable place for us to be, in the 40% to 43% payout ratio over the long haul. We think
thats sustainable and secure and allows us to invest in the business.
And I think net debt, its a good thing for the investor all the way
around. If they want to stay in media, they can take the appreciation. If they want to rotate out of it and go back into a higher-yield offering, they can ultimately sell it and choose to do that, but they will prepay several years of dividend on
the value we unlock. So I think this is probably a good thing.
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