AT&T to Spin Off WarnerMedia and Merge with Discovery in $43B Deal

Deal will create a huge entertainment powerhouse.

In the biggest entertainment deal of the year, AT&T announced that it would spin off its WarnerMedia entertainment division and combine it with Discovery, Inc. to create a standalone global entertainment company. The deal will give AT&T $43 billion in a combination of cash, debt securities and WarnerMedia’s retention of certain debts. AT&T shareholders will receive 71% ownership in the new company, and Discovery shareholders will own 29%. Both AT&T and Discovery boards of directors have approved the transaction.

Discovery president and CEO David Zaslav will lead the new entertainment company, which has not yet been named. A name is expected to be revealed sometime this week. The new company’s board will consist of 13 members, including seven initially appointed by AT&T including the board chair, and Discovery will initially appoint six members including Zaslav. The deal is expected to close in mid-2022, subject to approval by Discovery shareholders, customary closing conditions, and regulatory approvals. AT&T shareholders do not need to approval the sale.

These are just a few of the brands and networks that the new combined company will own and manage.
These are just a few of the brands and networks that the new combined company will own and manage. Image courtesy of AT&T.

Comments from AT&T and Discovery CEOs

“This agreement unites two entertainment leaders with complementary content strengths and positions the new company to be one of the leading global direct-to-consumer streaming platforms. It will support the fantastic growth and international launch of HBO Max with Discovery’s global footprint and create efficiencies which can be re-invested in producing more great content to give consumers what they want,” said AT&T CEO John Stankey in the May 17 announcement.

“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 shareholders will retain their stake in our leading communications company that comes with an attractive dividend. Plus, they will get a stake in the new company, a global media leader that can build one of the top streaming platforms in the world,” Stankey said.

Zaslav also commented on the deal.

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“During my many conversations with John, we always come back to the same simple and powerful strategic principle:  these assets are better and more valuable together. It is super exciting to combine such historic brands, world class journalism and iconic franchises under one roof and unlock so much value and opportunity. With a library of cherished IP, dynamite management teams and global expertise in every market in the world, we believe everyone wins…consumers with more diverse choices, talent and storytellers with more resources and compelling pathways to larger audiences, and shareholders with a globally scaled growth company committed to a strong balance sheet that is better positioned to compete with the world’s largest streamers,” Zaslav said.

“We will build a new chapter together with the creative and talented WarnerMedia team and these incredible assets built on a nearly 100-year legacy of the most wonderful storytelling in the world.  That will be our singular mission: to focus on telling the most amazing stories and have a ton of fun doing it,” added Zaslav.

Transaction highlights

The new entertainment company will provide value to shareholders and subscribers, including these highlights:

  • WarnerMedia brings direct-to-consumer streaming subscription service HBO Max to the partnership. The company launched HBO Max in May 2020, and as of the end of March 2021, HBO and HBO Max had a combined total of 63.9 million subscribers.
  • Discovery has an extensive catalog of content, including new programming available on its own direct-to-consumer streaming subscription service, Discovery+, launched in January 2021. As of April 28, Discovery reported 15 million total paying direct-to-consumer subscribers across its portfolio, including subscribers to Discovery+.
  • The new company is estimated to earn revenue of $52 billion in 2023. The new entertainment company is expected to start with $55 billion in debt, reports CNN.
  • Annualized cost synergies from the two companies are estimated at around $3 billion.
  • Together the companies will expand their reach to new customers and markets across 200 countries and territories.
  • The combined estimate of content is near 200,000 hours, including programming from HBO, Warner Bros., Discovery, DC Comics, CNN, Cartoon Network, HGTV, Food Network, Turner Networks, Animal Planet, ID and more.

Insider Take

If the $43 billion price tag didn’t make it obvious, this is a HUGE deal for all involved. AT&T can focus on its communications business and pay down debt, and Discovery has the opportunity to scale its business and expand into new markets. The new entertainment company will also allow WarnerMedia and Discovery to operate more efficiently, invest in the right content for their audiences, and compete against the biggest players in the streaming business – Disney and Netflix. With the expertise of their best managers and leaders, the new entertainment company will undoubtedly become an even bigger streaming and entertainment powerhouse than either AT&T’s WarnerMedia or Discovery could become alone.