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American multinational conglomerate AT&T Inc (NYSE:T) has agreed to join its media assets with television network giant Discovery Inc (NASDAQ:DISCA), the companies announced on Monday, May 17.
This move, which will combine AT&T-owned WarnerMedia's sports, premium entertainment and news assets with Discovery’s non-fiction, sports and international entertainment businesses, is set to create a standalone entity.
Once the operations begin, the merger entity will compete with rivals like Netflix (NASDAQ:NFLX) and Walt Disney (NYSE:DIS).
AT&T Inc-Discovery Merger Deal – Key Insights
The Board of Directors of both the companies have approved this deal, which will receive $43 billion in cash, debt securities and debt retention,
According to it, AT&T shareholders will receive 71 per cent stock of the new company and the remaining will be owned by Discovery shareholders.
Speaking about the deal, Discovery CEO David Zaslav said that the deal will “benefit” the shareholders of the combined entity as it will be in a better position to compete with the top streaming services providers.
AT&T Inc-Discovery Merger Deal – What To Expect
The new company is expected to achieve a revenue of US$ 52 billion and an adjusted EBITDA of approximately US$ 14 billion in 2023.
Both the companies expect the deal to accelerate their plans for leading direct-to-customer streaming services and expand their global customer base.
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DISCA Stock Performance
Outpacing the NASDAQ Composite Index in the last year, Discovery stocks surged by 74.2 per cent. Its year-to-date (YTD) growth stands at 18.5 per cent, having touched a fresh 52-week high of US$ 78.14 on March 19.
Discovery holds a price-to-earnings (P/E) ratio of 24.4. Its return on equity is 9.6 per cent, while its return on assets is 2.9 per cent.
In the last 10 days, DISCA shares accumulated an average trading volume of over 7.1 million shares on the Nasdaq exchange.
Following the announcement, DISCA stock was down about three per cent on Monday (12.30PM EST).
AT&T Stock Performance
AT&T shares were up by about a per cent on Monday at the time of writing this. The stock reflects a price-to-book ratio of 1.4 and price-to-cashflow ratio of 5.2.
The telecom stock also holds a one-month average trading volume of 36.2 million.
As WarnerMedia and Discovery’s businesses merge, we are yet to see how the deal formulation pans out for the shareholders of the two enterprises. But based on Monday’s statement, AT&T is likely to have a dominant position in the deal with a 71 per cent stake, making it a buy stock.
The above constitutes a preliminary view and any interest in stocks should be evaluated further from an investment point of view.
