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AT & T’s WarnerMedia, discovery to merge in the blockbuster deal

(Bloomberg) – AT&T Inc. has agreed to outsource its media activities under a contract with Discovery Inc. that will create a new entertainment company that will bring together assets from CNN and HBO to HGTV and the Food Network . The transaction valued the combined AT&T will receive $ 43 billion in cash, debt and debt payments, with shareholders receiving shares that represent 71% of the new company, a statement Monday. The deal is structured as a tax-friendly Reverse Morris Trust. First reported by Bloomberg News, the plan would combine Discovery’s reality TV empire with AT & T’s vast media holdings, creating a formidable competitor for Netflix Inc. and Walt Disney Co. A retreat for the ambitions of the entertainment industry from AT&T after years of working on putting telecommunications and media resources together under one roof. AT&T, now the world’s most indebted non-financial company, gained some of the largest entertainment brands through the $ 85 billion acquisition of Time Warner Inc. that was completed in 2018. David Zaslav, Discovery’s Chief Executive Officer, will lead the new company. WarnerMedia CEO Jason Kilar’s future has yet to be determined, AT&T CEO John Stankey said on a conference call to discuss the deal. The transaction includes all of AT&T’s WarnerMedia activities. In addition to CNN and HBO, WarnerMedia owns Cartoon Network, TBS, TNT and the Warner Bros. studio. Discovery, supported by cable mogul John Malone, controls networks such as TLC and Animal Planet. The name of the new company will be announced this week, Zaslav said on the conference call. ‘Supplementary content’ ‘This agreement brings together two leading providers of entertainment offerings with complementary content strengths and positions the new company as one of the world’s leading direct-to-consumer stream platforms, “said Stankey in the statement. “It will support the fantastic growth and international rollout of HBO Max with Discovery’s global footprint, creating efficiencies that can be reinvested in producing greater content to give consumers what they want.” later on Monday and were even down 4.5% to $ 34.05. AT&T climbed 1% to $ 32.56 as of 12:30 p.m. in New York. With the run-down of assets, Stankey broke off a buying spree launched by predecessor Randall Stephenson. The deal underscores the difficulty telecommunications companies have had to find a payoff from their media activities. Verizon Communications Inc. announced its own plan to lose weight earlier this month. The company agreed to sell its media division to Apollo Global Management Inc. for $ 5 billion. This means that online brands such as AOL and Yahoo are being outsourced. “I expect AT&T to be the world’s leading telecommunications and communications company. Said Zaslav on the conference call. And the new combined company “won’t stop until we have the world’s leading entertainment company, reaching people on every device.” Although he has questioned whether news content is a good fit with Discovery in the past, Zaslav said the new company would keep CNN on and “lean into the news”. A streaming industry veteran who helped found Hulu, Kilar has been running WarnerMedia for a year. At a recent investor conference, he defended the need for the company to be owned by AT&T, saying the telecommunications company invested billions of dollars in HBO Max and broken down silos within the company to create a single operating unit. He added that AT&T phone and broadband customers would be less likely to cancel if they received HBO Max, and many of HBO Max’s subscribers were AT&T customers. At Discovery, Zaslav helped the company grow in 2018 through acquisitions including the purchase of HGTV owner Scripps Networks Interactive Inc. Discovery RallyDiscovery shares rallied at a rapid pace earlier this year but were more than half their value lost since Bill Hwang’s Archegos Capital Management was forced to liquidate its positions. Shares were up 18% through the end of last week. That gave the company a market value of nearly $ 24 billion. AT&T was up 12% in 2021 for a market cap of $ 230 billion. LionTree LLC and Goldman Sachs Group Inc. advised AT&T on the transaction, while Allen & Co. and JPMorgan Chase & Co. worked with Discovery. Perella Weinberg Partners also advised the independent directors of Discovery. Stankey cleaned the house of the sprawling telecommunications institution, cut staff and sold sub-par assets. The company has poured money into rolling out its 5G cellular network, which will require billions of dollars in investments, as well as expanding its fiber optic footprint. What Bloomberg Intelligence Says: “We believe Comcast could add its NBC unit to the bidding mix. An NBC-Warner matchup would combine two powerful studios and streaming platforms, while a scaled-up TV network unit with $ 12 billion Ebitda could better weather worldly declines and generate $ 2 billion in cost savings. – Geetha Ranganathan, Media Analyst Click to Read Study The carrier has ramped up film and television production to attract subscribers to its HBO Max streaming service. It also takes cash to pay off debts. AT&T took out $ 200 billion in loans after a spending spree, and while it reduced its debt, it now has bills from a recent frequency auction. AT&T was the second highest bidder in the Federal Communications Commission’s sale of radio waves, tying up $ 23 billion. Verizon, the top bidder, agreed to pay $ 45 billion. The Discovery deal comes just months after AT&T signed a deal to outsource its DirecTV operations in a pact with buyout firm TPG. AT&T also agreed in December to sell its Crunchyroll anime video unit to a unit of Sony Corp. for $ 1.2 billion. for sale. The company has parted ways with its Puerto Rico phone business, a stake in Hulu, a Central European media conglomerate, and almost all of its offices. Stephenson had spent his 13-year tenure as CEO building the company. Stephenson, who handed the reins to Stankey last year, even kept a color-coded list of companies AT&T should buy, resulting in 43 acquisitions. Critics like activist investor Elliott Management Corp. However, complained about the strategy and asked AT&T to focus on its core business. AT & T’s mountain of debt also put pressure on the company to downsize and sell assets. “Year of Transformation” The Discovery deal is an admission that AT & T’s bold plan to build a media and communications conglomerate was a costly misfire. Tomorrow he praised Stankey’s efforts to reroute the Dallas-based phone company. “It’s been a year of transformation at AT&T,” said Jesse Cohn, managing partner, and Marc Steinberg, portfolio manager, in a statement. “AT&T has now delivered on its promise to streamline operations and get back to core business.” Analysts see the cartel risk for the Discovery bond as low. By creating a large collection of cable channels, the question for competition authorities is whether the combined company would have increased leverage over pay-TV retailers, which could result in higher prices for consumers. However, the Justice Department approved a much larger media merger in 2018 with Disney’s purchase of film and TV assets from 21st Century Fox. Economic Harm “If the DOJ didn’t think the combination of these cable assets was causing market damage, it is little difficult to see what economic damage a smaller combination could cause. This is especially true if the economic performance of cable systems declines as the performance of streaming systems increases, ”Blair Levin, analyst at New Street Research, said in a statement on Monday The Department argued it was illegal, a challenge that ultimately failed. Since then, consumer streaming options have proliferated, which Bloo says will ease the path to approval by mberg intelligence analyst Jennifer Rie. She is awaiting a review, which may take up to a year and may require the new company to sell some assets or agree to arbitration provisions if there is a dispute with cable companies over distribution agreements. “That outcome is far more likely than the DOJ, which is trying to try again after losing the first time,” she said. (Updates with shares in paragraph 8, comments from Elliott in paragraph 24.) More stories like this one are available on bloomberg.com © 2021 Bloomberg LP

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