AT&T set to finish media voyage with $43 billion Discovery deal By Reuters

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© Reuters. FILE PHOTO: The corporate brand for AT&T is displayed on a display screen on the ground on the New York Inventory Trade (NYSE) in New York, U.S., September 18, 2019. REUTERS/Brendan McDermid/File Photograph

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By Kenneth Li and Subrat Patnaik

(Reuters) – AT&T (NYSE:), proprietor of HBO and Warner Bros studios, and Discovery (NASDAQ:), house to life-style TV networks corresponding to HGTV and TLC, mentioned they’ll mix their content material to kind a standalone world leisure and media enterprise.

Discovery Chief Government David Zaslav will lead the proposed new firm, which can comprise one in all Hollywood’s strongest studios, together with the Harry Potter and Batman franchises, information community CNN, sports activities programming and Discovery’s unscripted house, cooking and nature and science exhibits.

Monday’s transfer marks the unwinding of AT&T’s bold plan to forge a telecoms and media powerhouse by a flurry of offers together with the 2018 $108.7 billion acquisition of U.S. media conglomerate Time Warner and the 2015 buy of satellite tv for pc TV service DirecTV for $68 billion.

Shares in Discovery climbed about 16% to $41.3 in premarket commerce however later fell 2% as buyers digested that it could take time for Discovery to scale up in streaming, Wealthy Greenfield, associate at LightShed Companions, mentioned.

“This firm goes to take a yr to be in place to take management of the property,” he mentioned. “The brand new firm might be higher after the deal, however it’ll take time.”

Shares in AT&T rose about 3% to $33.23 after the announcement of the brand new firm, which might be 71% owned by AT&T shareholders and 29% by Discovery buyers.

AT&T mentioned it’ll use the $43 billion proceeds from the tax-free spin-off of its media property to pay down its greater than $160 billion of debt.

The telecoms large additionally mentioned it deliberate to chop its dividend payout ratio, which is the proportion of earnings paid to shareholders in dividends, to the low 40% vary, down from round 60% within the earlier quarter.

The enterprise worth of the brand new mixed firm might be greater than $120 billion, carrying $58 billion in debt, together with $43 billion from WarnerMedia and $15 billion from Discovery.

The title of the brand new firm might be disclosed by subsequent week, whereas different particulars, together with the longer term function of WarnerMedia CEO Jason Kilar and the way the mixed properties and providers might be organized, have but to be labored out, executives mentioned on a name with reporters.

The deal underscores the motion of TV viewership to streaming, the place scale is required to tackle the likes of Netflix Inc (NASDAQ:) and Walt Disney (NYSE:) Co.

“The alternatives in direct to client streaming are quickly evolving, and to maintain tempo and keep a management place, a number of issues are required – world scale, entry to capital, a broad array of top of the range content material and {industry} greatest expertise,” AT&T Chief Government John Stankey instructed a information briefing.

Mixed the corporate will spend about $20 billion on content material, greater than the $17 billion Netflix will spend this yr, and Zaslav mentioned he anticipated to extend programming funding sooner or later.

“Whereas additional particulars have but to emerge, the proposed horizontal mixture would create a world content material behemoth uniting WarnerMedia’s premier information and leisure property with Discovery’s industry-leading cache of non-scripted programming networks,” Keith Snyder at CFRA Analysis mentioned.

The deal isn’t a surprise, Snyder added, after strain on conventional pay-TV ramped up through the coronavirus pandemic as customers binge-watched streaming exhibits whereas caught at house.

With Time Warner, former AT&T Chief Government Randall Stephenson sought to create a media and telecoms large, combining content material and distribution.

This proved a pricey technique as AT&T concurrently sought to increase subsequent technology wi-fi providers, most not too long ago spending $23 billion to purchase extra spectrum.

TELCO TURNAROUNDS

AT&T isn’t the primary telco to shed its media property.

Verizon Communications Inc (NYSE:) introduced plans on Might 3 to drop its media companies, which embody Yahoo and AOL, for $5 billion, ending an costly and unsuccessful run within the media and promoting world.

AT&T and Discovery’s new mixed enterprise is projected to have 2023 income of about $52 billion and adjusted EBITDA of about $14 billion.

The deal is anticipated to shut in mid-2022, pending approval by Discovery shareholders and regulatory approvals.

The brand new firm is predicted to see $3 billion in value synergies and has no plans to promote any property.

LionTree and Goldman Sachs (NYSE:) suggested AT&T, whereas Allen & Firm and JPMorgan (NYSE:) suggested Discovery. Perella Weinberg suggested the impartial administrators of Discovery.





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