AT&T Inc. plans to combine its WarnerMedia business with Discovery Communication Inc.’s entertainment business to create a standalone media company with greater scale in the streaming ecosystem.
The companies officially announced the deal Monday morning, after it was reported by numerous outlets over the weekend. AT&T
will receive $43 billion through the deal and the telecommunications giant’s shareholders will own 71% of the new company upon the close of the deal.
The deal, which is structured as a Reverse Morris Trust, is expected to close in mid-2022.
AT&T shares are up 3.9% in premarket trading while Discovery shares are up 17%.
“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 fiber to meet substantial, long-term demand for connectivity,” AT&T Chief Executive John Stankey said in a release. Shareholders will also “get a stake in the new company, a global media leader that can build one of the top streaming platforms in the world.”
Chief Executive David Zaslav, who will run the combined company, added that “these assets are better and more valuable together.”
AT&T took on debt for its Time Warner acquisition back in 2018, in a deal worth more than $80 billion. This latest deal is a chance to for the company to reduce its debt load while refocusing its attention on its wireless business at a pivotal moment. The company is in the midst of an expensive 5G buildout and it recently committed more than $23 billion toward spectrum licenses that it won at a critical wireless auction.
The company expects “significant debt reduction” through the deal and said in a release that its ratio of net debt to adjusted earnings before interest, taxes, depreciation, and amortization could be “in the 2.6x range after transaction closes and less than 2.5x by year end 2023.” AT&T’s net-debt-to-adjusted-Ebitda ratio was 3.1 times at the end of the first quarter.