AT&T Announces WarnerMedia, Discovery Deal


On Monday, AT&T Inc. announced they would spin off their entertainment company, WarnerMedia and combine it with Discovery Inc. in an all-stock, reverse Morris trust transaction. WarnerMedia and Discovery will merge to form an independent company which will seek to compete with other content streaming platforms such as Netflix and Disney. The move comes nearly three years after AT&T originally acquired TimeWarner, which rebranded to WarnerMedia.

There are key differences between the companies as they stand today – Discovery’s programming is largely nonfiction, while WarnerMedia produces mostly scripted content. According to the press release announcing the deal, Discovery’s nonfiction, international entertainment, and sports businesses will be complemented by WarnerMedia’s assets, which include premium entertainment, sports, and news coverage. By merging the two media outlets, the hope is to capitalize on the diverse strengths of each company and combine them into one cohesive media platform that will “sharpen the investment focus and attract the best investor base for each company.”

In compensation for WarnerMedia, AT&T will receive $43 billion in various forms, including cash, debt securities, and WarnerMedia’s retention of certain debt. AT&T shareholders will have 71% of the shares in the new company, whereas Discovery shareholders will own 29%. According to the release, brands such as HBO, Warner Bros., Discovery, CNN, and HGTV will contribute to the company’s projected 2023 revenue of $52 billion and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $14 billion. The transaction is expected to create $3 billion in cost synergies, meaning that operating costs will be more efficient following the combination of the companies.

Current Discovery president and CEO David Zaslav will lead the media platform, which has yet to be named. LionTree LLC and Goldman Sachs & Co. LLC will serve as financial advisors for AT&T, while they will be legally advised by Sullivan & Cromwell LLP. Discovery will use Allen & Company LLC and J.P. Morgan Securities LLC as financial advisors, and will use Debevoise & Plimpton LLP as their legal advisor. 

Still subject to regulatory approval, the merger is expected to be complete by mid-2022. Both AT&T and Discovery are hoping to accelerate their individual plans for leading direct-to-consumer streaming services by joining forces in their new brand. Current AT&T CEO John Stankey said the new company hopes to become “a global media leader that can build one of the top streaming platforms in the world.”