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Pascal Desroches “couldn’t be more pleased” with the regulatory review process of the planned WarnerMedia merger with Discovery, the AT&T CFO told investors on Tuesday.
The executive also told the virtual Bank of America Securities 2021 Media, Communications and Entertainment Conference that AT&T continues to expect the transaction will close during the first half of 2022. “We are really pleased with how that is moving forward,” he said, adding: “There is no reason why this merger should not be approved.
Desroches had earlier in the year said that the deal shouldn’t face any real challenges from regulators and could end up securing clearances before the companies’ mid-2022 closing target date. “We are not concerned at all that this could be challenged from a regulatory standpoint,” he added. And AT&T CEO John Stankey recently said that there had been nothing “problematic” in the regulatory review of the mega-deal.
One open question is what form one step of the merger will take. AT&T will transfer WarnerMedia to a newly-formed corporation dubbed “Spinco” and will distribute shares of Spinco to its shareholders by way of a pro-rata dividend, an exchange offer or a combination of the two. If a spin-off is chosen, shares of the new company will be distributed to existing shareholders; if a split-off is chosen, shareholders would have to choose between the stock of the new company or AT&T.
Desroches said a final decision on that and what to do with the $43 billion in cash that AT&T will get in the deal will be made closer to its closing with a focus on optimizing shareholder returns. “If we believe that the remaining connectivity business is undervalued, it may suggest that we should do a split,” he said. “If on the other hand we think that the media business … is undervalued, it may lean more toward a spin.”
AT&T has been in deal mode in recent months. In May, it agreed to the media mega-merger of entertainment arm WarnerMedia with Discovery after agreeing to sell a 30 percent stake in its pay TV business to private equity firm TPG, which closed a little bit faster than originally expected. The company also unveiled a deal to sell Vrio, the Latin American arm of DirecTV, to Grupo Werthein, based in Argentina.
And on Monday, WarnerMedia sold celebrity news and gossip brand TMZ to Fox Corp. Terms of the agreement were not disclosed, but a person familiar with the deal pegged its value at less than $50 million.
One deal scenario of interest to Wall Street analysts and bankers has long been a potential transaction between DirecTV and Charlie Ergen’s Dish. With AT&T recently striking a deal to replace T-Mobile as Dish Network’s primary network services partner, some have wondered if the pact could increase the likelihood of a DirecTV-Dish merger down the line.
Stankey has signaled there could be additional opportunities to work together. “When you think about this relationship, a broader wholesale capability beyond just the wireless business is a part of this, which is … attractive to us as an infrastructure provider,” he said. “And there are opportunities for us to think about, as Dish deploys network infrastructure where they go, for us to do some things that are complementary and helpful to both businesses.”
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