It’s Official: AT&T and Discovery Detail Merger Plans

The companies officially announced the merger of WarnerMedia and Discovery, detailing their plans, with Discovery CEO David Zaslav to serve as CEO of the new company.

AT&T and Discovery Inc. have made it official, unveiling their plan to merge their media and entertainment assets in a deal that will bring together TV channels like CNN, TBS, TNT, HGTV, Food Network and Discovery Channel, the Warner Bros. film studio, and streaming services HBO Max and Discovery+.

They said the merger would create a “global leader in entertainment” and “a stronger competitor in global streaming.”

The new company will “compete globally in the fast-growing direct-to-consumer business, bringing compelling content to direct-to-consumer subscribers across its portfolio, including HBO Max and the recently launched Discovery+,” the firms said. “The transaction will combine WarnerMedia’s storied content library of popular and valuable IP with Discovery’s global footprint, trove of local-language content and deep regional expertise across more than 200 countries and territories.”

Related Stories

And they highlighted: “The new company will be able to invest in more original content for its streaming services, enhance the programming options across its global linear pay TV and broadcast channels, and offer more innovative video experiences and consumer choices.”

Under the terms of the deal, WarnerMedia and Discovery will merge through a complex all-stock transaction called a Reverse Morris Trust that would see AT&T receive $43 billion in cash, debt securities, and WarnerMedia’s retention of certain debt, and AT&T’s shareholders would receive stock representing 71 percent of the new company. Wall Street observers said the Reverse Morris Trust bore the mark of major Discovery shareholder and media mogul John Malone, who has a reputation for complex, tax-efficient deals.

Discovery CEO David Zaslav will lead the merged company as CEO, and there is no word about a role for WarnerMedia CEO Jason Kilar. The companies say the deal will close in 2022, subject to shareholder and regulatory approvals.

The combined company is expected to have $52 billion in revenue in 2023, and the companies say there will be $3 billion in cost synergies through the combination. AT&T, meanwhile, will focus its efforts on 5G and fiber broadband.

“This agreement unites two entertainment leaders with complementary content strengths and positions the new company to be one of the leading global direct-to-consumer streaming platforms,” said AT&T CEO John Stankey in a statement. “It will support the fantastic growth and international launch of HBO Max with Discovery’s global footprint and create efficiencies which can be re-invested in producing more great content to give consumers what they want.”

Added Zaslav, “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.”

The merger is just the latest example of consolidation in the media and entertainment space in recent years, as companies jockey to scale up in order to take on streaming video giants like Netflix and, to a certain extent, YouTube.

In December 2019, Viacom and CBS remerged after being split by owner Sumner Redstone in 2006. The newly crowned ViacomCBS launched a streaming service, Paramount+, earlier this year.

In early 2019, The Walt Disney Co. acquired the entertainment assets of 21st Century Fox in a $71.3 billion blockbuster deal that paved the way for Disney+. Discovery previously bulked up in 2018 through the $14.6 billion takeover of Scripps Networks Interactive, the owner of Food Network and HGTV.

Meanwhile, Comcast acquired a majority stake in NBCUniversal in 2011 before taking full ownership in 2013. Analysts including MoffettNathanson’s Michael Nathanson and LightShed’s Rich Greenfield have argued that NBCUniversal and WarnerMedia would make logical merger partners, though with the Discovery deal now announced, Comcast/NBCUniversal would have to make an alternative offer.

The company has a history of doing so. For example, when Disney acquired Fox, Comcast swooped in and acquired Fox’s stake in Sky after a bidding war with Disney.

“Discovery [together with] WarnerMedia would create a direct-to-consumer player with the content bona fides to be one of the best global players,” said Wells Fargo analyst Steven Cahall. “The combined content assets could push this potential company into the direct-to-consumer winners’ circle as HBO and Warner Bros. are great brands and libraries, respectively, while Discovery has unique lifestyle content and some of the best international reach in media.” He concluded: “In global direct-to-consumer, it may not be a winner take all market, but it’s probably a winners take most market, and this is the sort of scale that’s required.”

Indeed, the merger partners said: “The ‘pure-play’ content company will own one of the deepest libraries in the world with nearly 200,000 hours of iconic programming and will bring together over 100 of the most cherished, popular and trusted brands in the world under one global portfolio, including: HBO, Warner Bros., Discovery, DC Comics, CNN, Cartoon Network, HGTV, Food Network, the Turner Networks, TNT, TBS, Eurosport, Magnolia, TLC, Animal Planet, ID and many more.”

Importantly, they added, the new company “will be able to increase investment and capabilities in original content and programming; create more opportunity for under-represented storytellers and independent creators; serve customers with innovative video experiences and points of engagement; and propel more investment in high-quality, family-friendly nonfiction content.”

Georg Szalai contributed to this report.