AT&T set to end media voyage with $ 43 b Discovery deal

Reuters: AT&T, owner of HBO and Warner Bros studios, and Discovery, home to lifestyle TV networks such as HGTV and TLC, said they will combine their content to form a standalone global entertainment and media business.

Discovery Chief Executive David Zaslav will lead the proposed new company, which will comprise one of Hollywood’s most powerful studios, including the Harry Potter and Batman franchises, news network CNN, sports programming and Discovery’s unscripted home, cooking and nature and science shows.

Monday’s move marks the unwinding of AT&T’s ambitious plan to forge a telecoms and media powerhouse through a flurry of deals including the 2018 $ 108.7 billion acquisition of US media conglomerate Time Warner and the 2015 purchase of satellite TV service DirecTV for $ 68 billion.

Shares in Discovery climbed about 16% to $ 41.3 in premarket trade but later fell 2% as investors digested that it would take time for Discovery to scale up in streaming, Rich Greenfield, partner at LightShed Partners, said.

“This company is going to take a year to be in position to take control of the assets,” he said. “The new company will be better after the deal, but it will take time.” Shares in AT&T rose about 3% to $ 33.23 after the announcement of the new company, which will be 71% owned by AT&T shareholders and 29% by Discovery investors. AT&T said it will use the $ 43 billion proceeds from the tax-free spin-off of its media assets to pay down its more than $ 160 billion of debt.

The enterprise value of the new combined company will be more than $ 120 billion, carrying $ 58 billion in debt, including $ 43 billion from WarnerMedia and $ 15 billion from Discovery.

The name of the new company will be disclosed by next week, while other details, including the future role of WarnerMedia CEO Jason Kilar and how the combined properties and services will be arranged, have yet to be worked out, executives said on a call with reporters.

The deal underscores the movement of TV viewership to streaming, where scale is required to take on the likes of Netflix Inc. and Walt Disney Co.

“The opportunities in direct to consumer streaming are rapidly evolving, and to keep pace and maintain a leadership position, several things are required – global scale, access to capital, a broad array of high quality content and industry best talent,” AT&T Chief Executive John Stankey told a news briefing.

Combined the company will spend about $ 20 billion on content, more than the $ 17 billion Netflix will spend this year, and Zaslav said he expected to increase programming investment in the future.