AT&T and Discovery to form new global streaming offering

US telco AT&T’s WarnerMedia is merging with Discovery’s nonfiction and international entertainment and sports businesses to create a premier, standalone global entertainment company, to rival Amazon Prime, Disney+ and Netflix.

The companies expect the transaction will create substantial value for AT&T and Discovery by “bringing together the strongest leadership teams, content creators, and high-quality series and film libraries in the media business”.

It will also accelerate respective plans for direct-to-consumer streaming services to  compete in the fast-growing sector, featuring content from HBO Max and the recently launched Discovery+.

The new company will have significant scale and investment resources with projected “2023 revenue of approximately US$52 billion, adjusted EBITDA of approximately US$14 billion, and an industry leading free cash flow conversion rate of approximately 60%”.

The new platform is set to invest in more original content for its streaming services, thus enhancing the programming options across its global linear pay TV and broadcast channels, and “offer more innovative video experiences and consumer choices”.

Discovery president and CEO David Zaslav, who will lead the proposed new company, said: “During my many conversations with John, we always come back to the same simple and powerful strategic principle: these assets are better and more valuable together. It is super exciting to combine such historic brands, world class journalism and iconic franchises under one roof and unlock so much value and opportunity. With a library of cherished IP, dynamite management teams and global expertise in every market in the world, we believe everyone wins…consumers with more diverse choices, talent and storytellers with more resources and compelling pathways to larger audiences, and shareholders with a globally scaled growth company committed to a strong balance sheet that is better positioned to compete with the world’s largest streamers.”

Under the terms of the agreement, which is structured as an all-stock, Reverse Morris Trust transaction, AT&T is set to receive US$43 billion (subject to adjustment) in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt, and AT&T’s shareholders would receive stock representing 71% of the new company; Discovery shareholders would own 29% of the new company. The boards of both AT&T and Discovery have approved the transaction.

Last week, fellow telco Verizon announced the sale of its Verizon Media division to private equity firm Apollo Global Management Inc. for US$5 billion (A$6.45 billion). The company will now go forward under the name Yahoo.


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