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Confirmed: AT&T and Discovery announce “US$150bn” streaming merger

New company will combine WarnerMedia assets with Discovery TV portfolio.

17 May 2021 Ed Dixon
  • AT&T to receive US$43bn for deal, which is expected to close mid-2022
  • Discovery president and CEO David Zaslav to lead new company, which is projecting revenue of US$52bn by 2023
  • New global streaming service looking to rival Netflix and Disney+

US telecommunications giant AT&T has reached a definitive agreement to spin off its media business and combine it with Discovery to create a new company valued at a reported US$150 billion.

The deal will see AT&T-owned WarnerMedia combine its entertainment, sports and news assets with Discovery’s nonfiction and international entertainment and sports businesses to form the standalone company.

The agreement is structured as an all-stock, ‘Reverse Morris Trust’ transaction, or a merger with another company that is structured to be tax-free. AT&T will receive US$43 billion in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt. AT&T’s shareholders will receive stock representing 71 per cent of the new company, while Discovery shareholders will own the remaining 29 per cent of the business.

The boards of directors of both AT&T and Discovery have approved the transaction, which is expected to close in the middle of 2022.

According to the Financial Times the new company could be valued at US$150 billion, including debt. It also signals the potential entry of another streaming giant into the market, while possibly creating a serious global rival to the likes of Netflix and Disney.

Discovery president and chief executive David Zaslav will lead the new business, with executives from both companies in key leadership roles. The company is projecting 2023 revenue of US$52 billion and earnings before interest, taxes, depreciation and amortisation (EBITDA) of US$14 billion. It will own nearly 200,000 hours of programming, offering content to subscribers across AT&T and Discovery’s portfolio, including the HBO Max and Discovery+ streaming services.

“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.

“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. 

“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.”

The merger comes after AT&T struck a definitive deal with TPG Capital in February to spin out its DirectTV broadcast business in a transaction which saw the private equity firm reportedly pay US$1.8 billion in cash.

AT&T’s US$85 billion acquisition of Time Warner in 2018 was also meant to usher in the creation of a new media and telecoms powerhouse that would combine content and distribution. However, it has proved a costly project and AT&T has been looking to reduce its debt, compounded by borrowing US$14 billion in February to buy more wireless spectrum.

In addition, since the deal for Time Warner, the media landscape has shifted heavily towards streaming. That has included the debut of AT&T’s HBO Max, which launched in 2020, while Discovery rolled out Discovery+ at the start of 2021. HBO and HBO Max currently have more than 63 million subscribers, while Discovery+ has 15 million.

In contrast, Netflix boasts 208 million subscribers and Disney+ has over 100 million.

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