AT&T, Inc. announced that its board of directors has determined to spin off AT&T’s interest in WarnerMedia in connection with the previously announced merger with Discovery, Inc. The transaction, which will spin off 100% of AT&T’s interest in WarnerMedia to AT&T’s existing shareholders, followed by the merger of WarnerMedia with Discovery, is expected to close in the second quarter of 2022.
Additionally, AT&T’s board of directors approved an expected post-close annual dividend of $1.11 per AT&T share, to account for the distribution of WarnerMedia to AT&T shareholders and to size the annual dividend payout at approximately 40% of projected free cash flow1 to enable investment in attractive growth opportunities.
As previously disclosed, under the terms of the transaction, which is structured as an all-stock, Reverse Morris Trust transaction, AT&T will receive $43 billion (subject to working capital and other adjustments) in a combination of cash and other consideration, and AT&T’s shareholders will receive stock representing approximately 71% of the new company, Warner Bros. Discovery, Inc. (WBD), on a fully diluted basis. Existing Discovery shareholders will own approximately 29% of the new company on a fully diluted basis.
Warner Media includes cable networks CNN, TNT, HBO, Cinemax and TBS along with Warner Bros. studios and DC Comics. Discovery has the cable networks Discovery, HGTV, Food Network, OWN, TLC and Animal Planet. The new combined company Warner Brothers Discovery will be headquartered in NY.
On the closing date of the transaction, each AT&T shareholder will receive, on a tax-free basis, an estimated 0.24 shares of the new WBD common stock for each share of AT&T common stock held as of the record date for the pro rata distribution. The exact number of shares of WBD to be received by AT&T shareholders for each AT&T common share will be determined closer to the closing based on the number of shares of AT&T common stock outstanding and the number of shares of Discovery common stock outstanding on an as-converted and as-exercised basis. AT&T has approximately 7.2 billion fully diluted shares outstanding. AT&T shareholders will continue to hold the same number of shares of AT&T after the transaction closes.
No action is required by AT&T’s shareholders to receive shares of WBD common stock in the merger, when it occurs. The closing of the transaction remains subject to satisfaction of certain conditions, including obtaining all necessary regulatory approvals.
“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,” said AT&T CEO John Stankey. “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.
“We believe that the remaining AT&T and the new WBD are two equities that the market will want to own and the markets to support those equities will develop,” Stankey said. “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. We are confident both equities will soon be valued on the solid fundamentals and attractive prospects they represent.”
Following the closing of the transaction, the WBD common stock is expected to be listed on the NASDAQ Global Select Market under the ticker “WBD.” In connection with the transaction, all classes of shares of Discovery capital stock will be converted and reclassified into common shares of WBD with one vote per share. AT&T will continue to trade on the NYSE under the ticker “T.”
