AT&T said Tuesday that it plans to spin off its interest in WarnerMedia, which will then be merged with Discovery to form a new company. The company said its board has already approved the plan, which is estimated to be valued at $43 billion.
The company will spin off 100% of its stake in WarnerMedia, with shareholders owning 71% of the new entity through a pro-rata distribution. Shareholders will receive 0.24 shares of the new company for each AT&T share. WarnerMedia will then be merged with Discovery to form a new company called Warner Bros. Discovery.
Existing Discovery shareholders will own 29% of the new company on a fully diluted basis. The deal is expected to be finalized within the second quarter of this year, pending the completion of certain conditions and regulatory approval, including that of the Justice Department.
Apart from announcing the deal, AT&T said it would also be cutting its dividend by nearly half. The company is planning to pay a dividend of $1.11 per share, which is nearly 50% less than the $2.08 per share it paid last time. The figure is within the lower end of the range the company had previously forecasted.
At AT&T's fourth-quarter earnings call last week, the company's CEO John Stankey indicated the board was still debating whether to spin off WarnerMedia or break it up. Stankey explained that there were advantages and disadvantages to both a spin and a split. A split-off would have effectively been AT&T's equivalent of a big stock buyback.
As of Tuesday, AT&T shares were down 4.5% after the company declared a dividend at the low end of its earlier $8 billion to $9 billion estimates. Discovery's share price was up 1.6%.
Warner Bros. Discovery common stock will be listed on the Nasdaq Global Select Market under the ticker code "WBD" when the deal closes. As part of the transaction, all classes of Discovery capital stock will be converted and reclassified into common shares of Warner Bros. Discovery with one vote per share. AT&T's stock will continue to trade on the New York Stock Exchange.
Warner Bros. Discovery expects to generate cost synergies, owing to technology, marketing, and platform savings, of more than $3 billion on an annual run-rate basis by the end of the second full year after the purchase closes.
The new company's board of directors will be made up of 13 members, including the chairwoman, who will be nominated by AT&T. Six members have been named by Discovery. AT&T said it would hold an investor's conference next month, and it will provide more insight, details, and expectations related to the deal.
