AT&T Inc. (T, Financial) revealed on Tuesday it is spinning off its WarnerMedia business in a $43 billion transaction to merge its media properties with Discovery Inc. (DISCA, Financial).
The deal to unwind the Dallas-based telecom company’s $85.4 billion acquisition of Time Warner, which occurred in 2016, was announced early last year, but financial details were not disclosed until now.
According to the terms of the agreement, AT&T shareholders will own 71% of Warner Bros. Discovery Inc., which will trade under the ticker “WBD.” They will receive 0.24 shares of the new company for each AT&T share they own.
Discovery shareholders will own approximately 29% of the company. Upon the closing of the deal, which is expected to occur during the second quarter, all classes of Discovery’s stock will be converted and reclassified into common shares of Warner Bros. Discovery with one vote per share.
While AT&T had contemplated a split-off of WarnerMedia, as opposed to a spin, CEO John Stankey said the company was guided by the objective of “executing the transaction in the most seamless manner possible to support long-term value creation.”
In a split-off scenario, shareholders would have been given the option to exchange AT&T shares for stock in the new company. However, Stankey told CNBC last week such a move would have created a “leakage” in value.
“Rather than try to account for market volatility in the near-term and decide where to apportion value in the process of doing an exchange of shares, the spin-off distribution will let the market do what markets do best,” Stankey said. “We are confident both equities will soon be valued on the solid fundamentals and attractive prospects they represent.”
By spinning off WarnerMedia, AT&T will be able to focus on building out its wireless network. It is projecting it will spend about $20 billion in capital expenditures to invest more heavily in fiber for home broadband internet services and expand its 5G wireless footprint.
The transaction will also help reduce AT&T’s debt load, which stood at a net $156.2 billion as of the end of the fourth quarter.
As for Warner Bros. Discovery, the media and entertainment company will be playing catch up in the streaming space to compete with giants like Netflix (NFLX, Financial) and Walt Disney (DIS, Financial). In its fourth-quarter results, AT&T said WarnerMedia’s HBO Max ended the year with 74 million global subscribers. While Netflix is far ahead, boasting more than 222 million global subscribers, WarnerMedia saw faster growth in the U.S. in the final months of 2021.
AT&T also cut its dividend by nearly half. Following the close of the deal, it will distribute an annual dividend of $1.11 per share. This is down from prior projections of $2.08 and is at the lower end of the $8 billion to $9 billion range the company had previously forecasted.
Investors did not seem pleased by the news as shares of AT&T were down 4.3% at $24.41 on Tuesday. Over the past 12 months, the stock has tumbled nearly 15%.
