AT&T officially announces $43BN WarnerMedia merger with Discovery
Details
Joseph O'Halloran
| 17 May 2021
Confirming earlier reports of a deal that is being described as monumental and likely to lead to a reshaping of the media landscape, AT&T has entered into a definitive agreement to combine its WarnerMedia premium entertainment, sports and news assets with Discovery's entertainment and sports businesses.

Under the terms of the agreement to create a premier, standalone global entertainment company, AT&T is scheduled to receive $43 billion in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt with its AT&T’s shareholders receiving stock representing 71% of the new company and Discovery shareholders 29%. AT&T and Discovery say that the new company will have significant scale and investment resources with projected 2023 revenue of approximately $52 billion, adjusted EBITDA of approximately $14 billion and a free cash flow conversion rate of approximately 60%.

AT&T and Discovery says their move will bring together the strongest leadership teams, content creators, and high-quality series and film libraries in the media business and unite complementary and diverse content strengths with broad appeal. That is WarnerMedia’s studios and portfolio of scripted entertainment, animation, news and sports with Discovery’s focus on unscripted and international entertainment and sports. The new company will now own one of the deepest libraries in the world with nearly 200,000 hours of programming from over 100 leading brands including HBO, Warner Bros., Discovery, DC Comics, CNN, Cartoon Network, HGTV, Food Network, the Turner Networks, TNT, TBS, Eurosport, Magnolia, TLC, Animal Planet and ID.

In addition, the new company will, say the two parties, be able to invest in more original content for its streaming services, enhance the programming options across its global linear pay-TV and broadcast channels, and offer more video experiences and consumer choices. As well as increased investment and capabilities in original content and programming, this could mean more opportunity for hitherto under-represented storytellers and independent creators and the ability to serve customers with imporved video experiences and points of engagement.

Moreover, the merged firm would have the necessary scale and financial clout to offer serious competition in the direct-to-consumer (DTC) arena with the likes of Netflix, Disney+ and Amazon Prime Video. The HBO and HBO Max assets are calculated to boast in the region of 64 million customers while at the end of its first month of launch in the US in January 2021, discovery+ became the most downloaded SVOD product of its type, outgunning not only the established giants but the hitherto strongly growing fellow upstarts in particular HBO Max. The core Discovery brand is said to reach almost 90 million US homes.

Current Discovery president and CEO David Zaslav will lead the proposed new company with a management team and operational and creative leadership drawn both companies. Revealing the focus of the companies’ discussions during the negotiation, Zaslav said that the two parties always came back to what he called a same simple and powerful strategic principle: their assets are better and more valuable together.

“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,” he remarked. “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.”

Assessing the upsides of the deal, AT&T said that for the company and its shareholders, the transaction provides an opportunity to unlock value in its media assets and to better position the media business to take advantage of the attractive DTC trends in the industry. Additionally, the company believes that the transaction will allow it to capitalise better the longer-term demand for connectivity, allowing stepped-up investment in growth areas, in particular mobile and fixed broadband. It added that the move would also create a capital structure improvement after closing will position AT&T as one of the best capitalised 5G and fibre broadband companies in the US.

“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,” said AT&T CEO John Stankey. “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. For AT&T shareholders, this is an opportunity to unlock value and be one of the best capitalised 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.”

The transaction is anticipated to close in mid-2022, subject to approval by Discovery shareholders and customary closing conditions, including receipt of regulatory approvals. No vote is required by AT&T shareholders.