AT&T to Merge Its WarnerMedia Business With Discovery in a Deal Estimated at $150 Billion

By Adriaan Brits Monday, May 17, 2021

AT&T, the world’s largest telecommunications company, has announced it has reached an agreement to spin off its WarnerMedia business and merge it with Discovery in one of the largest media business deals ever. The new company will pose a direct challenge to Netflix and Disney+.

AT&T headquarters and the Discovery Times Square museum.

Responding to Rapid Growth Recorded by Netflix and Disney

AT&T will merge its content business WarnedMedia with the media company Discovery in a business deal that is expected to create a new competitor among Hollywood media business giants, such as Netflix and Disney.

The business deal will provide the US telecom company with about $43 billion in a combination of cash, debt, and WarnerMedia’s retention of certain debt. Shareholders of AT&T would gain 71% of the stock of the combined company, while Discovery shareholders would own 29%.

“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. 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,” said John Stankey, CEO of the telecom company.

If this business deal obtains regulatory approval, it will cease AT&T’s years-long plan to merge content and distribution in a vertically integrated company. According to the Financial Times, the business deal is expected to create an individual company that could hit as much as $150 billion in the business valuation.

Discovery’s president and chief executive David Zaslav will lead the new business, including a board of 13 members, seven appointed by AT&T and six by Discovery. Zaslav said that the two companies agreed to merge as 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 said in a statement.

AT&T is a parent company of media giants, which include CNN, HBO, and Warner Bros. On the other hand, Discovery owns Animal Planet and the Discovery Channel.

At the moment, HBO and HBO Max count about 64 million subscribers around the world, while Discovery said last month it has 15 million paying subscribers, compared to Netflix’s 208 million global subscribers. Disney+ recently announced it reached more than 100 million subscribers just a year and a half after its launch.

Wedbush analyst Dan Ives said the deal represents an offensive strategic move by AT&T to step up its game in the battle between streaming giants Netflix, Disney, and Amazon.

On the other hand, Aviva’s CIO, David Cummings, believes shareholders could be feeling uneasy about the deal. While he agreed that AT&T needed to bulk up its content, Cummings said the market could be feeling skeptical about this business merger.

Shares of Discovery surged 27% in pre-market trading, while shares of AT&T ticked 4% higher on the news.

Summary

Discovery and AT&T’s WarnerMedia are merging to create one of the world’s largest media businesses to challenge Netflix and Disney+. If approved by regulators, the new company could be valued at as much as $150 billion.

About the Author


Headshot for author Adriaan Brits
As an analyst of global affairs, Adriaan has an MSC from Oxford, with diverse interests in the digital economy, entertainment, and business. He is a specialist trainer in Advanced Analytics & Media.

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