US operator AT&T agreed to combine its WarnerMedia unit with pay-TV broadcaster Discovery, a deal the pair claimed will create a global leader in entertainment.
The companies jointly stated the deal involves combining WarnerMedia’s premium entertainment, sports and news assets with similar Discovery businesses to create a standalone company.
This new business will offer the “most differentiated content portfolio in the world”.
AT&T will receive $43 billion (subject to adjustment) comprised of cash, debt securities and WarnerMedia’s retention of certain debt, while the operator’s shareholders receive stock representing 71 per cent of the new company. Discovery shareholders will hold the remainder.
The boards of both companies approved the move.
AT&T and Discovery expect to accelerate plans to lead the direct-to-consumer (DTC) streaming sector globally through combining leadership teams and content creators to deliver diverse programming.
It will create a new rival to content giants Netflix and Disney by bringing together more than 100 brands such as HBO, Warner Bros., Discovery, DC Comics, CNN, Cartoon Network, Food Network, the Turner Networks, Eurosport and Animal Planet.
A name for the new entity will be unveiled within the next week.
The new company is projected to bring in revenue of approximately $52 billion in 2023: there is also an expectation of at least $3 billion in cost synergies annually.
AT&T added the deal was designed to unlock media assets, capitalise on streaming trends and position it as “the best capitalised 5G and fibre broadband” company in the US.
Discovery president and CEO David Zaslav will lead the new company, with its board initially comprising seven members appointed by AT&T and six by the pay-TV outfit.
The deal is expected to close in mid-2022, subject to approval from Discovery shareholders and customary closing conditions. No vote is required by AT&T shareholders.
AT&T completed an $85.4 billion purchase of Time Warner in 2018 and steadfastly defended its logic for the move, stating its wireless broadband and entertainment businesses are synergistic.
The operator launched its HBO Max streaming service in May 2020 and later planned to issue new Warner Bros. Pictures films on the wireless service for a month as they were released in cinemas.
Figures for Q1 show the streaming strategies appear to be paying off, with WarnerMedia revenue up almost 10 per cent year-on-year and its DTC subscription sales around 35 per cent higher.
In February, AT&T detailed a spin-off of its DirecTV satellite business into a company co-owned with private equity group TPG Capital which is expected to complete in H2 and net the operator $7.6 billion in cash.
Additional reporting by US contributing editor Martha DeGrasseSubscribe to our daily newsletter Back