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AT&T will owe Discovery Inc. $1.77 billion if it terminates the merger between WarnerMedia and Discovery. Meanwhile, Discovery would owe the telecom giant a $720 million breakup fee if it backs out of the merger. However, if U.S. regulators kill the deal, there will be no termination fees.
The termination fees were detailed in the Plan of Merger between the two companies, which was filed with the Securities and Exchange Commission on Thursday.
The termination fees in the WarnerMedia-Discovery merger are comparable to other fees in similar mergers. In 2017, Disney agreed to pay 21st Century Fox $2.5 billion if regulators blocked its merger, with Fox agreeing to pay Disney $1.5 billion if Disney backed out. In 2016, WarnerMedia’s predecessor company, Time Warner, agreed to pay AT&T $1.7 billion if it backed out of that acquisition, with AT&T on the hook for a $500 million fee.
In this case though, the triggering events are somewhat narrow, with AT&T not needing to secure a shareholder vote on the deal. In addition, AT&T agreed to not engage with other potential WarnerMedia bidders.
That being said, in the event a “Superior Proposal” for either company results in the deal being called off, the respective termination fees would be triggered.
There has been speculation that the deal could spur on other mega mergers, as entertainment industry giants could scale up in response to WarnerMedia-Discovery.
While the companies say they anticipate that the deal will close in mid-2022, the merger agreement says that they have until July 15, 2023 to complete the deal.
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