Official: AT&T, Discovery To Combine Media Assets, Including CNN

AT&T Inc. will combine its sprawling WarnerMedia division with Discovery Inc., the companies announced this morning, unwinding the telecom giant’s signature bet on media as pressure on the traditional entertainment business mounts.

AT&T would receive $43 billion in cash, debt securities and WarnerMedia’s retention of certain debt under the all-stock deal, the companies said Monday. AT&T shareholders would get stock representing 71% of the new entity, while Discovery shareholders would own the rest, the companies added.

The deal would further consolidate a media business buffeted by cord-cutting and competition from streaming video. WarnerMedia owns cable channels such as HBO, CNN, TNT and TBS as well as the Warner Bros. television and film studio. Discovery has a portfolio that includes its namesake network and HGTV.

The Wall Street Journal first reported on Sunday that AT&T and Discovery were in talks for a combination.

The tie-up is a surprising U-turn by AT&T, which placed a massive bet on media with its 2018 acquisition of Time Warner Inc. for around $81 billion. That deal made it the world’s most indebted nonfinancial company.

Discovery President and Chief Executive David Zaslav will lead the proposed new entity, the companies said.

According to The NY Times Dealbook, here are the key points of the WarnerMedia-Discovery deal:

• AT&T will spin out WarnerMedia through a reverse Morris Trust and merge it with Discovery. AT&T shareholders will own 71 percent of the combined business, but Discovery’s C.E.O., David Zaslav, will run it.
• The new company forecasts revenue of $52 billion and an operating profit of $14 billion in 2023. It also expects $3 billion in annual “cost synergies” (which usually means layoffs, among other things).
• The new company expects to have more than $20 billion in free cash flow to spend on content (and dividends).
• The deal will clean up Discovery’s complex corporate governance structure, which has multiple stock classes, to make it one vote per share.

Earlier Posting today...

AT&T Inc. is in talks to combine its sprawling WarnerMedia division with Discovery Inc., according to The Wall Street Journal citing people familiar with the matter, potentially unwinding the telecom giant’s signature bet on media, as pressure on the traditional entertainment business mounts.

The talks, which likely value the AT&T business at well over $50 billion with debt, could lead to an agreement by Monday, the people said, who cautioned that the talks could still fall apart.

David Zaslav

A deal between WarnerMedia and Discovery would further consolidate a media business buffeted by cord-cutting and competition from streaming video. WarnerMedia owns cable channels such as HBO, CNN, TNT and TBS as well as the Warner Bros. television and film studio. Discovery has a portfolio that includes its namesake network and HGTV.

Discovery Chief Executive David Zaslav is expected to head the new company, people familiar with the matter said.

It is uncertain whether Jason Kilar, the current chief executive of WarnerMedia, will stay on in a lesser role.

The potential tie-up would be a surprising U-turn by AT&T, which placed a massive bet on media with its 2018 acquisition of Time Warner Inc. for around $81 billion. That deal made it the world’s most indebted nonfinancial company.

If the transaction moves forward, AT&T Chief Executive John Stankey will have unwound the two biggest deals done by his predecessor, Randall Stephenson, in his 10 months in charge. Earlier this year the company reached a deal with private-equity firm TPG to shed a 30% stake in its DirecTV business for $1.8 billion. AT&T had acquired DirecTV in 2015 for $49 billion.