In a quick turnaround after rumors of a merger surfaced this weekend, AT&T has announced that it is spinning off WarnerMedia (which includes HBO) and joining forces with Discovery to create a new media company as part of a massive $43 billion merger.
AT&T says that as part of the new deal, AT&T will get $43 billion in cash, debt securities, and debt retention, with AT&T receiving a 71% stake in the new company and Discovery getting the other 29%. The new media company will be helmed by current Discovery CEO David Zaslav, with other execs from both AT&T and Discovery stepping in to fill out the new company’s board of directors (seven from AT&T, and six from Discovery including Zaslav).
The end goal for AT&T and Discovery is to create a new media powerhouse that combines the existing content and libraries of both companies (which includes content from HBO, Warner Bros., CNN, Food Network, HGTV, DC Comics, TNT, Cartoon Network, and more), while also “accelerating both companies’ plans for leading direct-to-consumer (DTC) streaming services for global consumers.”
By spinning WarnerMedia out and merging with Discovery, not only does AT&T get some much-needed cash to pay down debt after acquiring WarnerMedia for $109 billion in 2018 and spending another $23 billion on new wireless spectrum earlier this year. The deal also frees up AT&T to focus more on expanding its 5G network and continue investing in building out fiber and fixed broadband across the U.S. As AT&T said in its press release, the result will be “two independent companies – one broadband connectivity and the other media – to sharpen the investment focus and attract the best investor base for each company.”
The deal is expected to be finalized sometime in mid-2022, pending regulatory approval and approval from Discovery’s shareholders (AT&T says no vote is required for AT&T shareholders).
After launching less than a year ago, this merger is expected to have a big impact on HBO Max, which could be in line to receive another major injection of content, while it remains to be seen what happens to Discovery’s own Discovery+ app, which just launched earlier this year in January.
Meanwhile, the potential odd man out in this deal could be NBCUniversal, who many had been betting on to team up with AT&T before today’s deal was announced. Debuting nationwide last year in July, Peacock was somewhat late to the streaming content wars and is reportedly still looking to beef up its content library, with its sights now shifting to a potential partnership with ViacomCBS.
Either way, while this merger will definitely make waves across the streaming industry, with the cutthroat nature of the digital media business, AT&T and Discovery’s merger surely won’t be the last on the horizon.