John Stankey, chief executive officer of AT&T Inc.*
(NYSE:T), spoke today at the J.P. Morgan Global Technology, Media
and Communications Conference, where he provided an update to
shareholders.
Underlying Business Momentum Supports Strategic Focus
Stankey said that he and AT&T’s board of directors considered a
variety of opportunities for the company, and that the strategic
separation of its media and communications operations reflects
their confidence in the underlying market momentum in both
businesses.
In AT&T Communications, over the last three quarters the
company has posted the best wireless postpaid net adds in more than
a decade. And the company recorded its best ever fiber gross adds
in the first quarter of 2021, with about 70% of those new to
AT&T. On a net basis, fiber subscribers were up more than 1
million, or 25%, versus the first quarter of 2020, with penetration
more than 35% across the company’s fiber base as of the first
quarter of 2021.
WarnerMedia delivered strong results in the first quarter of
2021, as well, with domestic HBO Max and HBO subscribers1 up 11.1
million since the launch of HBO Max in the second quarter of 2020,
reaching more than 44 million. This strong momentum comes ahead of
the recently announced ad-supported subscription tier of HBO Max
priced at $9.99 per month, which will launch in the United States
the first week of June. HBO Max will begin expanding
internationally in June targeting 60 countries in Latin America and
Europe in 2021. WarnerMedia also continues to invest in content and
ramp up production as pandemic-related restrictions abate giving
all of its distribution channels, including HBO Max, a robust
lineup of content to continue to engage and delight viewers.
WarnerMedia-Discovery Deal Improves Financial Flexibility
Stankey said that the WarnerMedia-Discovery transaction will
significantly improve AT&T’s financial flexibility by providing
$43 billion (subject to adjustment) for debt reduction through a
combination of cash, debt securities and WarnerMedia’s retention of
certain debt. This debt reduction allows the company to progress
toward the end-of-year 2023 leverage ratio target of less than
2.5x2 while increasing investment in growth areas of 5G and
fiber.
Post close, Stankey said he believes that having a clear
ownership separation between AT&T and WarnerMedia gives
AT&T the opportunity to align its investor base in the
communications business with a focused total return capital
allocation strategy. He said he expects that increased investment
in 5G and fiber will support longer-term growth and healthy returns
for shareholders.
A Unique Opportunity to Support Improved Market
Positioning The combination of WarnerMedia with Discovery and
subsequent opportunity to materially increase investment in
AT&T’s core communications business provides a unique
opportunity to improve both businesses’ market positioning.
AT&T shareholders will own 71% of the shares in the new
media company. It will have not only global direct-to-consumer
(DTC) distribution capabilities but also a robust content library
and the ability to create compelling new content, both of which are
imperative to successfully compete in DTC on a global basis.
Combining WarnerMedia with Discovery also will give the new company
an opportunity to drive efficiencies that can be reinvested into
content and digital innovation and used to scale the global DTC
business. Ultimately, Stankey noted that in addition to these
synergies value is also expected to be created for shareholders
both by unlocking WarnerMedia from AT&T as a parent company and
by accelerating the new company’s ability to scale.
AT&T is confident the new company can deliver on the
expected cost synergies of $3 billion per year given Discovery’s
proven track record, including delivering synergies from its
Scripps acquisition that were more than two times original
projections. For the combination with WarnerMedia, the companies
expect significant synergies from technology, marketing and
platform savings with consolidation of DTC capabilities. Additional
synergies are expected from corporate overhead and SG&A
savings, particularly for domestic networks as well as
opportunities to reduce duplicate initiatives designed to support
growth in each of the standalone entities.
Stankey also reiterated that Discovery is the right company to
combine with WarnerMedia given the complementary assets. Confidence
in the combination is reflected by the fact that holders of
approximately 44% of Discovery stock have already indicated they
will vote in favor of the transaction.
In AT&T’s remaining communications-focused business, the
company is at the crossroads of two technology transitions — 5G and
fiber. Following close of the WarnerMedia Discovery transaction,
AT&T will have the financial flexibility to boost investment to
historically high levels that are also significantly above its
competitors’ planned investments.
AT&T’s expected capital expenditures of around $24 billion
per year from 2022 to 2024 builds on its existing position as one
of the largest investors in digital infrastructure and connectivity
in the United States. This investment will allow AT&T to meet
substantial, long-term demand for connectivity by delivering
broadband access to millions more households with plans to expand
the company’s fiber footprint to cover 30 million customer
locations by year-end 2025, and expectations for its 5G C-band
network to cover 200 million people in the U.S. by year-end 2023.
AT&T also believes it will be able to better compete against
companies offering alternate technology solutions, some of which
lack the proven ability to meet customers’ growing connectivity
needs.
Total Return Strategy Focused on Creating Attractive
Shareholder Returns Stankey noted that the company’s total
return capital allocation strategy is focused on driving long-term
shareholder returns. Management’s goal is to provide both
WarnerMedia and AT&T Communications the ability to invest the
capital needed by both businesses and access to capital to do
so.
He said that AT&T’s expected robust free cash flows of $20
billion plus2 per year post closing gives him and the board
confidence in AT&T’s ability to pay the dividend and invest at
elevated levels. This free cash flow guidance reflects confidence
in the company’s ability to generate EBITDA growth via continued
success in mobility and improvements in the consumer wireline
business from increased fiber investments and steady management of
the company’s business wireline operations. Additional support will
come from plans to realize incremental transformation cost savings
of $1.75 billion to $2 billion by 2023 — with some of the savings
expected to be reinvested to support growth initiatives; expected
annual cash distributions from DIRECTV of about $1 billion; and
lower cash interest costs after using the approximately $50 billion
in proceeds from the pending WarnerMedia and DIRECTV transactions
to de-lever the balance sheet.
Attractive Dividend. AT&T does not expect changes to
the dividend prior to the close of the WarnerMedia-Discovery
transaction, which is expected to occur in mid-2022. Stankey
reiterated that after close and subject to AT&T Board approval,
AT&T is expected to continue to be among the top 5% of dividend
paying stocks with an anticipated annual dividend level of $8
billion to $9 billion per year. Also at close, existing
shareholders of AT&T will continue to hold their shares in
AT&T but will also hold 71% of shares of the new media company.
The expected value of those shares based on the capitalization as
of May 14, 2021, is in the $7-$8 range per share of AT&T stock,
or the equivalent of 4+ years of AT&T’s current annual
dividend, tax free.
Stockholders will have optionality to maintain their stake in
the new media company and benefit from any appreciation, or, for
those who prefer dividend income, they may sell their shares of the
new media company and reinvest in dividend stocks, including
AT&T.
Looking Ahead. Following close of the WarnerMedia
transaction and on a pro forma basis, AT&T expects:
- Annual revenue growth: low single digits CAGR
- Annual adjusted EBITDA and adjusted EPS growth: mid-single
digit CAGR
- Significant debt reduction with Net Debt to Adjusted EBITDA2 in
the 2.6x range after close, moving to less than 2.5x by year end
2023
- Attractive dividend, subject to AT&T Board approval, with
an annual dividend payout ratio3 of 40% to 43% on anticipated free
cash flow of $20 billion plus
- Optionality to repurchase shares once Net Debt to Adjusted
EBITDA is less than 2.5x
Stankey reiterated that the company will remain diligent in
examining its asset portfolio, stepping up investment levels to
support growth where needed, to refine and optimize the returns and
fuel further investment, and to monetize assets where there are
opportunities to drive additional shareholder value.
The WarnerMedia-Discovery transaction is anticipated to close in
mid-2022, subject to approval by Discovery shareholders and
customary closing conditions, including receipt of regulatory
approvals.
1 Domestic HBO Max and HBO subscribers
consist of accounts with access to HBO Max (including wholesale
subscribers that may not have signed in) and HBO accounts, and
exclude free trials and Cinemax subscribers.
2 Net Debt to Adjusted EBITDA ratios are
non-GAAP financial measures that are frequently used by investors
and credit rating agencies to provide relevant and useful
information. AT&T’s Net Debt to Adjusted EBITDA ratio is
calculated by dividing the Net Debt by the sum of the most recent
four quarters Adjusted EBITDA. Adjusted EBITDA estimates depend on
future levels of revenues and expenses which are not reasonably
estimable at this time. Accordingly, we cannot provide a
reconciliation between Adjusted EBITDA and the most comparable GAAP
metric without unreasonable effort.
3 Dividend payout ratio is total dividends
paid divided by free cash flow. Free cash flow is a non-GAAP
financial measure that is frequently used by investors and credit
rating agencies to provide relevant and useful information. Free
cash flow is cash from operating activities minus capital
expenditures. Due to high variability and difficulty in predicting
items that impact cash from operating activities and capital
expenditures, the company is not able to provide a reconciliation
between projected free cash flow and the most comparable GAAP
metric without unreasonable effort.
Cautionary Statement Concerning Forward-Looking
Statements Information set forth in this communication,
including financial estimates and statements as to the expected
timing, completion and effects of the proposed transaction between
AT&T, Magallanes, Inc. (“Spinco”), and Discovery, Inc.
(“Discovery”) constitute forward-looking statements within the
meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These estimates and statements are
subject to risks and uncertainties, and actual results might differ
materially. Such estimates and statements include, but are not
limited to, statements about the benefits of the transaction,
including future financial and operating results, the combined
Spinco and Discovery company’s plans, objectives, expectations and
intentions, and other statements that are not historical facts.
Such statements are based upon the current beliefs and expectations
of the management of AT&T and Discovery and are subject to
significant risks and uncertainties outside of our control. Among
the risks and uncertainties that could cause actual results to
differ from those described in the forward-looking statements are
the following: the occurrence of any event, change or other
circumstances that could give rise to the termination of the
proposed transaction; the risk that Discovery stockholders may not
approve the transaction proposals; the risk that the necessary
regulatory approvals may not be obtained or may be obtained subject
to conditions that are not anticipated; risks that any of the other
closing conditions to the proposed transaction may not be satisfied
in a timely manner; risks that the anticipated tax treatment of the
proposed transaction is not obtained; risks related to potential
litigation brought in connection with the proposed transaction;
uncertainties as to the timing of the consummation of the proposed
transaction; risks and costs related to the implementation of the
separation of Spinco, including timing anticipated to complete the
separation, any changes to the configuration of the businesses
included in the separation if implemented; the risk that the
integration of Discovery and Spinco being more difficult, time
consuming or costly than expected; risks related to financial
community and rating agency perceptions of each of AT&T and
Discovery and its business, operations, financial condition and the
industry in which it operates; risks related to disruption of
management time from ongoing business operations due to the
proposed merger; failure to realize the benefits expected from the
proposed merger; effects of the announcement, pendency or
completion of the proposed merger on the ability of AT&T,
Spinco or Discovery to retain customers and retain and hire key
personnel and maintain relationships with their suppliers, and on
their operating results and businesses generally; and risks related
to the potential impact of general economic, political and market
factors on the companies or the proposed transaction. The effects
of the COVID-19 pandemic may give rise to risks that are currently
unknown or amplify the risks associated with the foregoing
factors.
These risks, as well as other risks associated with the proposed
transaction, will be more fully discussed in the proxy
statement/prospectus that will be included in the registration
statements that will be filed with the SEC in connection with the
proposed transaction. Discussions of additional risks and
uncertainties are contained in AT&T’s and Discovery’s filings
with the Securities and Exchange Commission. Neither AT&T nor
Discovery is under any obligation, and each expressly disclaims any
obligation, to update, alter, or otherwise revise any
forward-looking statements, whether written or oral, that may be
made from time to time, whether as a result of new information,
future events, or otherwise. Persons reading this announcement are
cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof.
Additional Information and Where to Find It This
communication may be deemed to be solicitation material in respect
of the proposed transaction between AT&T, Spinco, and
Discovery. In connection with the proposed transaction, AT&T,
Spinco and Discovery intend to file relevant materials with the
Securities and Exchange Commission (“SEC”), including a
registration statement on Form S-4 by Discovery that will contain a
prospectus of Discovery and Spinco that also constitutes a proxy
statement of Discovery, and a registration statement by Spinco.
This communication is not a substitute for the registration
statements, proxy statement/prospectus or any other document which
AT&T, Spinco or Discovery may file with the SEC. STOCKHOLDERS
OF AT&T AND DISCOVERY ARE URGED TO READ ALL RELEVANT DOCUMENTS
FILED WITH THE SEC, INCLUDING THE REGISTRATION STATEMENT AND PROXY
STATEMENT/PROSPECTUS, BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security
holders will be able to obtain copies of the proxy
statement/prospectus (when available) as well as other filings
containing information about AT&T, Spinco and Discovery,
without charge, at the SEC’s website, http://www.sec.gov. Copies of
documents filed with the SEC by AT&T or Spinco will be made
available free of charge on AT&T’s investor relations website
at https://investors.att.com. Copies of documents filed with the
SEC by Discovery will be made available free of charge on
Discovery’s investor relations website at
https://ir.corporate.discovery.com/investor-relations.
No Offer or Solicitation This communication is for
informational purposes only and is not intended to and does not
constitute an offer to sell, or the solicitation of an offer to
subscribe for or buy, or a solicitation of any vote or approval in
any jurisdiction, nor shall there be any sale, issuance or transfer
of securities in any jurisdiction in which such offer, sale or
solicitation would be unlawful, prior to registration or
qualification under the securities laws of any such jurisdiction.
No offer of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the Securities
Act of 1933, as amended, and otherwise in accordance with
applicable law.
Participants in Solicitation AT&T and its directors
and executive officers, and Discovery and its directors and
executive officers, may be deemed to be participants in the
solicitation of proxies from the holders of Discovery capital stock
and/or the offering of Discovery securities in respect of the
proposed transaction. Information about the directors and executive
officers of AT&T is set forth in the proxy statement for
AT&T’s 2021 Annual Meeting of Stockholders, which was filed
with the SEC on March 11, 2021. Information about the directors and
executive officers of Discovery is set forth in the proxy statement
for Discovery’s 2021 Annual Meeting of Stockholders, which was
filed with the SEC on April 30, 2021. Investors may obtain
additional information regarding the interest of such participants
by reading the proxy statement/prospectus regarding the proposed
transaction when it becomes available.
*About AT&T AT&T Inc. (NYSE:T) is a diversified,
global leader in telecommunications, media and entertainment, and
technology. Consumers and businesses have more than 225 million
monthly subscriptions to our services. AT&T Communications
provides more than 100 million U.S. consumers with entertainment
and communications experiences across mobile and broadband. Plus,
it serves high-speed, highly secure connectivity and smart
solutions to nearly 3 million business customers. WarnerMedia is a
leading media and entertainment company that creates and
distributes premium and popular content to global audiences through
its consumer brands, including: HBO, HBO Max, Warner Bros., TNT,
TBS, truTV, CNN, DC Entertainment, New Line, Cartoon Network, Adult
Swim and Turner Classic Movies. Xandr, now part of WarnerMedia,
provides marketers with innovative and relevant advertising
solutions for consumers around premium video content and digital
advertising through its platform. AT&T Latin America provides
pay-TV services across 10 countries and territories in Latin
America and the Caribbean and wireless services to consumers and
businesses in Mexico.
AT&T products and services are provided or offered by
subsidiaries and affiliates of AT&T Inc. under the AT&T
brand and not by AT&T Inc. Additional information is available
at about.att.com. © 2021 AT&T Intellectual Property. All rights
reserved. AT&T, the Globe logo and other marks are trademarks
and service marks of AT&T Intellectual Property and/or AT&T
affiliated companies. All other marks contained herein are the
property of their respective owners.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210524005843/en/
Fletcher Cook AT&T Inc. Phone: 214-912-8541 Email:
fletcher.cook@att.com
AT&T (NYSE:T)
Historical Stock Chart
From Mar 2024 to Apr 2024
AT&T (NYSE:T)
Historical Stock Chart
From Apr 2023 to Apr 2024