AT&T has agreed to separate and combine WarnerMedia with rival Discovery in a multi-billion dollar deal to create a media empire that has the programming clout to compete with Disney and Netflix around the world. race streaming.
The move will create the world’s second-largest media company by revenue after Disney. It comes just three years after AT&T paid $ 85.4 billion to the owner of CNN, HBO and Warner Bros. and reflects the frantic pace of change for mainstream American media groups. try to reinvent oneself as streaming services.
As part of the proposed combination, one of Hollywood’s most sought-after portfolios – including Warner Bros. film and television studios, the HBO network, and a portfolio of cable channels including CNN – will be brought together with the “Real life” outing of Discovery, whose brands range from sports and wildlife to home improvement.
David Zaslav, longtime CEO of Discovery, will lead the combined group, which will be 71% owned by AT&T. Jason Kilar, executive hired last year to speed up WarnerMedia switch to streaming with HBO Max, was not mentioned in the merger file.
The newly merged company will have an enterprise value of approximately $ 132 billion, including $ 56 billion in debt. The two companies said they expect around $ 3 billion in annual synergies, which they plan to invest in content and digital innovation. A name has not been publicly confirmed, but the favorite being discussed internally is Warner Discovery, according to two people familiar with the situation.
The transaction represents a humiliating retirement for AT&T, which has racked up one of the largest US corporate debts in a gamble to become the world’s largest vertically integrated content and distribution company. “This should end the debate over the synergies between content and distribution,” said Jonathan Chaplin, analyst at New Street Research, who called the deal a “complete surrender.”
The spin-off is the latest in a series of non-sentimental deals signed by John Stankey, who took over as CEO last year, to unravel the expansionary legacy of his predecessor and refocus the company on its core business. This included sell a 30% stake DirecTV at private equity group TPG this year, a deal that valued the struggling TV business at $ 16.25 billion – about a third of what AT&T paid six years ago.
The momentum of the Discovery tie-up is the accelerated race between the world’s largest tech and media companies to catch up with Netflix and own a piece of the entertainment future. In the past 18 months alone, Disney, Apple, WarnerMedia, Comcast, Discovery and others have launched streaming platforms with global ambitions.
Writing ahead of the deal’s announcement, Jason Bazinet, analyst at Citi, said he could imagine “several other potential suitors entering the fray” for Discovery or proposing a concurrent merger with WarnerMedia. “We wouldn’t rule out Comcast, Disney or ViacomCBS getting involved,” he wrote.
AT&T and Discovery included significant termination fees as part of the deal, agreeing to pay $ 720 million or $ 1.8 billion, respectively, if the deal fails.
Discovery and WarnerMedia generated combined revenues of $ 41 billion in 2020, which compares to the $ 65 billion in revenue of Disney, the world’s largest media group.
Discovery’s low-cost, factual program catalog, which supports 80 network brands in more than 200 countries and territories, is potentially a valuable addition to WarnerMedia’s own entertainment-rich library of shows and movies. Meanwhile, WarnerMedia’s financial size and the quality of its catalog will give Discovery a chance to be one of the world’s top four streaming services.
As the two companies bring complementary content and geographic footprints, the merger will require a heart-wrenching integration process, potentially wasting efforts to create and market separate streaming services. Discovery in April said it reached 15 million subscribers in its streaming business, while HBO Max had nearly 3 million subscribers in the first quarter, reaching 9.7 million retail subscribers at the end of the month. Of March.
However, companies are struggling to keep pace with their much bigger rivals: Netflix has 208 million subscribers worldwide, while Disney Plus has garnered 104 million subscribers in just a year and a half since launch.
The deal is a victory for Discovery’s two main shareholders, who have backed Zaslav in his aggressive turn to streaming, which would either give the mainstream TV group a future or make it more attractive to suitors. Together, John Malone, the billionaire cable and media mogul, and Advance, the investment vehicle of the Newhouse family, the owners of Condé Nast, control approximately 45% of the voting rights in Discovery.
AT&T shares were up 4.3% early in trading to $ 33.61 while Discovery was up 4.5% to $ 37.26.