AT&T announced plans Tuesday to spin off its media and entertainment company WarnerMedia as part of a previously announced merger with Discovery. The $43 billion merger and spin-off are expected to close during the second quarter of 2022.
The transactions will give AT&T the opportunity to focus more on building out its wireless network and leave more of its media interests to the newly formed Warner Bros. Discovery (WBD). Initial plans to form WBD were announced last May and the company is intended to be a “premier, standalone global entertainment company,” according to a statement from AT&T.
With a new focus on its wireless tech, AT&T plans to invest $20 billion in 5G connectivity and fiber later this year, as reported by CNBC. The Dallas-based telecommunications company intends to cover 200 million people in the U.S. with its 5G C-band network by the end of 2023. Likewise, its fiber footprint is expected to cover 30 million customer locations by the end of 2025, according to a company statement.
“In evaluating the form of distribution, we were guided by one objective — executing the transaction in the most seamless manner possible to support long-term value generation,” AT&T CEO John Stankey said in the statement. “We are confident the spin-off achieves that objective because it’s simple, efficient and results in AT&T shareholders owning shares of both companies, each of which will have the ability to drive better returns in a manner consistent with their respective market opportunities.”
Following the merger, existing AT&T shareholders will receive stock representing 71 percent of the newly formed company, Warner Bros. Discovery. Existing Discovery shareholders will then own approximately 29 percent of the new company.
The expected post-close annual dividend for AT&T shares will be $1.11 per share. Once the deal closes, each shareholder will receive an estimated 0.24 shares of the WBD common stock for each share of AT&T common stock. The newly formed company’s stock is expected to trade under the ticker symbol WBD on the Nasdaq Global Select Market.
Debt reduction is another reason AT&T decided to spin off its interest in WarnerMedia as part of the Discovery merger. According to CNBC, last quarter AT&T had a net debt of $156.2 billion, which it expects to drop to 2.5 times by the end of 2023.
When the merger closes, WBD will offer nearly 200,000 hours of programming with brands like HBO, CNN, HGTV, Food Network, Magnolia, TLC and others under its umbrella, according to a statement.