AT&T and Discovery to combine media and entertainment businesses

AT&T today revealed plans to spin off its WarnerMedia business—which includes CNN, HBO Max and more—and combine it with Discovery Inc. to form a new standalone company.

Under the terms of the agreement, AT&T would receive $43 billion in a combination of cash, debt securities and WarnerMedia’s retention of certain debt. AT&T’s shareholders would receive stock representing 71% of the new company and Discovery shareholders would own 29% of the new company.

The transaction is anticipated to close in mid-2022, subject to approval by Discovery shareholders and certain regulatory approvals. The companies said no vote is required by AT&T shareholders and that they have agreements in place with Dr. John Malone, a major Discovery shareholder, and Advance to vote in favor of the transaction. AT&T CEO John Stankey said those agreements represent nearly 45% of the total shareholder vote at Discovery.

AT&T and Discovery said the new company will reach a projected 2023 revenue of approximately $52 billion including more than $15 billion in direct-to-consumer streaming revenues. The combined company is also expected to take in an adjusted EBITDA of approximately $14 billion and a free cash flow conversion rate of approximately 60%.

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In addition to HBO Max and Discovery+, the new “pure play” content company would own a content library with nearly 200,000 hours of programming and will bring together more than 100 brands including HBO, Warner Bros., Discovery, DC Comics, CNN, Cartoon Network, HGTV, Food Network, the Turner Networks, TNT, TBS, Eurosport, Magnolia, TLC, Animal Planet, ID and more.

Discovery President and CEO David Zaslav will lead the proposed new company and the board will consist of 13 members, seven initially appointed by AT&T, including the chairperson of the board. Discovery will initially appoint six members including Zaslav.

"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,” said Zaslav in a statement.

“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 Stankey in a statement. “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.”