AT&T is merging WarnerMedia with TV company Discovery to create a media giant to compete with firms like Netflix and Disney that are leading the charge in streaming content.
The combination will be executed through a Reverse Morris Trust, under which WarnerMedia will be spun or split off to AT&T’s shareholders via dividend or through an exchange offer or a combination of both and simultaneously combined with Discovery.
The transaction is expected to be tax-free to AT&T and AT&T’s shareholders.
In connection with the spin-off or split-off of WarnerMedia, AT&T will receive $43 billion (R608 billion) in a combination of cash, debt securities and WarnerMedia’s retention of certain debt.
The “pure-play” content company will own one of the deepest libraries in the world with nearly 200,000 hours of iconic programming and will bring together over 100 of the most cherished, popular and trusted brands in the world under one global portfolio, 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 many more.
The new company will be able to increase investment and capabilities in original content and programming; create more opportunity for under-represented storytellers and independent creators; serve customers with innovative video experiences and points of engagement; and propel more investment in high-quality, family-friendly nonfiction content.
The transaction is anticipated to close in mid-2022, subject to approval by Discovery shareholders and customary closing conditions, including receipt of regulatory approvals.
The companies expect the transaction will create substantial value for AT&T and Discovery shareholders by:
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- Bringing together the strongest leadership teams, content creators, and high-quality series and film libraries in the media business.
- Accelerating both companies’ plans for leading direct-to-consumer (DTC) streaming services for global consumers.
- Uniting complementary and diverse content strengths with broad appeal — WarnerMedia’s robust studios and portfolio of iconic scripted entertainment, animation, news and sports with Discovery’s global leadership in unscripted and international entertainment and sports.
- Forming a new company that will have significant scale and investment resources with projected 2023 Revenue of approximately $52 billion (R735 billion), adjusted EBITDA of approximately $14 billion (R198 billion) and an industry-leading Free Cash Flow conversion rate of approximately 60%.
- Creating at least $3 billion (R42 billion) in expected cost synergies annually for the new company to increase its investment in content and digital innovation, and to scale its global DTC business.
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