AT&T is to merge its Warner Media assets with Discovery in a deal estimated to be around $43 billion.
The deal will form a standalone global entertainment and media company, valued at around $150 billion to compete with streaming giants like Netflix and Disney.
The new company would include CNN, HBO, Warner Bros., Animal Planet, TLC, and Discovery channel under a single umbrella creating a behemoth of a streaming service.
Discovery President and CEO, David Zaslav will lead the new company and the new name for the company will be announced in the coming weeks.
AT&T will receive $43 billion in a combination of cash, debt, and Warner Media’s retention of certain debt. The deal is structured as a tax-advantaged Reverse Morris Trust.
Shareholders of AT&T would own 71% of the new company while Discovery shareholders would own the remaining 29%.
The new company is expected to invest more than $20 billion in producing new content, over-shadowing Netflix’s expected $17 billion by about 20%.
The deal is anticipated to close in 2022, with the new company having a projected revenue of $52 billion in the fiscal year 2023.
The news stirred a positive reaction in the share prices of both the companies, where Discovery rose by 20% while AT&T rose about 5% in the pre-market.
The deal comes as no surprise as fellow telecom giants; Verizon Communications has also been shedding its media assets to invest heavily in the upcoming 5G technology.
The long-term debts of AT&T dropped to $159 billion including $23 billion it agreed to spend to revamp its infrastructure to support 5G.
AT&T had acquired Time Warner for around $85 billion about 3 years ago. This mega-blockbuster deal also means an end to AT&T ’s plans to combine content and distribution in a single vertically integrated company and become a content and delivery powerhouse, ultimately indicating a failed acquisition strategy. Now, all that the newfound content behemoth awaits is the regulator's approval.
