AT&T (NYSE:T) will spin off its media operations in a deal with Discovery Inc. AT&T will receive $43 billion in cash and debt securities as part of the deal, and its shareholders are expected to hold about 71% of the new company.
The deal will combine Discovery’s reality-TV programming with AT&T’s diverse content from WarnerMedia, potentially challenging media and streaming behemoths such as Disney and Netflix. The spinoff could also help AT&T – which is one of the world’s most heavily indebted nonfinancial companies – cut debt.
We view the deal as quite positive for AT&T, given that its strategy of combining telecom services with media didn’t make much headway. However, the stock declined by about 6% in Tuesday’s trading, as investors believe AT&T overpaid for its 2018 purchase of Time Warner. Moreover, AT&T indicated that it plans to reduce its dividend after the completion of the merger.
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