Project Description

AT&T Warner Media Spin-off/Merger with Discovery Notes

Update May 21, 2021

On May 17, 2021, AT&T Inc.(NYSE:T) announced that it had reached a deal to combine WarnerMedia, including CNN, HBO, TNT, TBS, and and Warner Bros. studio, with Discovery Inc. (NASDAQ: DISCA), creating a new publicly traded company.

The move comes just three years after AT&T’s creation of WarnerMedia through its $85 billion acquisition of Time Warner, which was scrutinized by the DOJ on antitrust grounds. 

This combination of Discovery, Inc. and WarnerMedia will form one of the largest global streaming players. The new “pure play” content company will own one of the deepest content libraries, with over 200,000 hours of programming across all streaming platforms. 

The deal is expected to create substantial value for shareholders of both companies, better positioning them to take advantage of growing DTC (direct-to-consumer) trends in the media industry. The construction of the new company will create significant scale and investment resources with projected 2023 Revenue of approximately $52 billion, adjusted EBITDA of approximately $14 billion, and an industry leading Free Cash Flow conversion rate of approximately 60%. It is also expected to create at least $3 billion in cost synergies annually for the new company to increase its investment in new content and scale its DTC business.

Under the terms of the agreement, which is structured as an all-stock, Reverse Morris Trust transaction, 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. This transaction is anticipated to close sometime mid-2022.