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Summary
- AT&T on Monday announced the anticipated amalgamation of WarnerMedia with Discovery
- Reacting to the development, AT&T shares rose as much as 5.09 per cent to 52-week high
- While Discovery shares fell into negative territory after register an 11 per cent gain
- AT&T is entitled to receive $43 billion, in a combination of cash and debt securities
AT&T, the Texas-headquared telecom giant, on Monday, 17 May, announced the anticipated amalgamation of WarnerMedia with Discovery. The merger has been seen as a potential competitor to the extant range of over-the-top (OTT) content and streaming service providers including Netflix, Amazon Prime, Disney Hotstar etc.
With the joint synergies, the resultant entity will be working towards developing high-quality series and film libraries alongside the presence of various content creators and leadership teams in the media business.
Following the development, stocks of AT&T (NYSE:T) and Discovery (NASDAQ:DISCA) reacted in a similar fashion, however, the shares of Discovery fell sharply from the morning peaks within an hour of the opening session.
As per the data available with the New York Stock Exchange (NYSE), the stock of AT&T rose as much as 5.09 per cent, to a fresh 52-week high of $33.88 from the previous close of $32.24 apiece.
AT&T shares (17 May)
(Source: Refinitiv, Thomson Reuters)
Barring the present day’s surge, the shares of AT&T have recorded a year-to-date (YTD) gain of 9.51 per cent but are quite far from the pre-pandemic levels. The stock of AT&T realised an intraday high of $34.06 on 17 March 2020.
On the other hand, the Nasdaq-listed component of Discovery jumped 11.36 per cent to an intraday high of $39.70 from the previous close of $35.65.
Discovery shares (17 May)
(Source: Refinitiv, Thomson Reuters)
Discovery shares have managed to amass a return of a little more than 16 per cent. On the contrary, the stock collapsed over 50 per cent, in a month’s period between 19 March and 20 April after the revenues from streaming and ad services disappointed the investors.
AT&T-Discovery merger: 10 highlights
- Under the said merger, WarnerMedia’s premium entertainment, sports and news assets will be combined with international non-fiction entertainment and sports businesses.
- Following the completion of the all-stock structured merger between AT&T and Discovery, AT&T would receive a cumulative sum of $43 billion, while its shareholders will get the stock equivalent to 71 per cent of the newly-orchestrated company.
- The total $43 billion, subject to adjustment, will be in a combination of debt securities, WarnerMedia’s retention of certain debt and cash.
- Discovery shareholders are entitled to own only 29 per cent of the new company, which includes the assets of WarnerMedia.
- Both the companies have zeroed in on a projected revenue of approximately $52 billion in 2023 for the new firm, subsequent to the widened scale of operations and investment resources.
- WarnerMedia and Discovery are looking forward to a free cash flow conversion rate of nearly 60 per cent and an approximate EBITDA of $14 billion in the corresponding year.
- The merger of AT&T and Discovery is likely to lead the AT&T shareholders through an increased investment in growth areas including the fixed broadband and mobile services.
- Goldman Sachs & Co LLC and LionTree LLC acted as the financial advisors, while Sullivan & Cromwell LLP was the legal advisor on the merger to AT&T.
- For Discovery, JP Morgan Securities LLC and Allen & Company LLC were the financial advisors, whereas Debevoise & Plimpton LLP acted as the legal aide to the firm.
- The merger between AT&T’s Warner Media and Discovery has been eyed as a desperate attempt to lead the direct-to-consumer (DTC) streaming services for consumers across the globe.
