AT&T is separating from WarnerMedia in a $43 billion spinoff to merge its media arm with Discovery. The details of the operation, announced since May 2021, were revealed on February 1. The American telecommunications giant should take the opportunity to strengthen its investments in its core business and reduce its debt, explains CNBC.
The details of the merger between WarnerMedia and Discovery
Instead of a rotation where AT&T shareholders would have had the possibility of exchanging their shares for shares of the new company baptized for the occasion Warner Bros Discovery, the American company opted for a split. This involves a distribution of shares of the new group to AT&T shareholders. Each will receive 0.24 shares for one AT&T security held.
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At the end of the operation, they will hold 71% of Warner Bros Discovery, the rest, 29%, will be distributed to the shareholders of Discovery. AT&T lowered the dividend distributed to shareholders to $1.11 per share from $2.08. In all, AT&T is expected to have 7.2 billion diluted shares outstanding after the transaction closes, which is just under $8 billion. After the completion of this transaction, Discovery and WarnerMedia will be able to complete their merger and give life to the new Warner Bros Discovery entity.
” We are convinced that the two groups will soon be valued on the basis of solid fundamentals and the attractive prospects they represent. said AT&T Chairman John Stankey. In May 2021, AT&T and Discovery specified that “ the new company will be able to invest in more original content for its streaming services, improve programming options on its pay-TV channels […] and provide more innovative viewer choices and video experiences. »
Upon completion of the merger, Warner Bros. Discovery will own more than 20 different media. Screenshot: AT&T/YouTube.
The new ambitions of AT&T and Warner Bros Discovery
The telecommunications giant bought the media group Time Warner, the former name of WarnerMedia, for the sum of 85 billion dollars in 2018. A purchase criticized at the time by many analysts. History ended up proving them right. By separating from WarnerMedia and delegating it to its shareholders, AT&T hopes to focus on its historical telecommunications business. One of its next challenges concerns the deployment of 5G in the United States, a process that is slow to be put in place.
The other motivation of AT&T with this operation is to bail out its coffers. The company ended its fourth quarter of 2021 with net debt of $156.2 billion. The split with Warner Bros is expected to help the group invest nearly $20 billion in 5G and the deployment of fiber optics in American homes in 2022.
For its part, Warner Bros Discovery will aim to catch up with some of its big rivals like Netflix or Disney+ in the video on demand sector. In the fourth quarter, HBO Max, the company’s SVOD, had nearly 74 million subscribers and was present in 61 countries. In the course of 2022, this service should be extended to fifteen European countries.