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WarnerMedia, Discovery confirm merger

David Zaslav will lead the combined company

AT&T-owned WarnerMedia and factual giant Discovery are merging to create a standalone company that combines their channel brands, studios and streaming services.

News of the deal to pair HBO, CNN and HBO Max operator WarnerMedia with Discovery – which owns a slew of US cablenets including Discovery Channel, TLC and HGTV and launched direct-to-consumer (D2C) offering Discovery+ earlier this year – emerged over the weekend.

The deal was confirmed as trading opened in New York this morning, being completed as a complicated Reverse Morris Trust transaction. WarnerMedia’s parent AT&T will receive US$43bn in cash, debt securities and WarnerMedia’s retention of certain debt, while AT&T shareholders will receive a 71% stake in the new company, with Discovery shareholders taking the remaining 29%.

Long-term Discovery president and CEO David Zaslav has been chosen to lead the new company. A 13-strong board of directors will be formed, with seven appointed by AT&T and six by Discovery – one of which will be Zaslav.

In a statement to the stock market, the companies said the move would combine WarnerMedia’s studios and portfolio of scripted entertainment, animation, news and sports with Discovery’s global leadership in unscripted and international entertainment and sports. It projected revenues of US$52bn for the new venture by 2023.

AT&T said the move “provides an opportunity to unlock value in its media assets and to better position the media business to take advantage of the attractive D2C trends in the industry.”

In total, the new company will boast a library of some 200,000 hours of programming, bringing together series from HBO, Warner Bros, Discovery, DC Comics, CNN, Cartoon Network, HGTV, Food Network, the Turner Networks, TNT, TBS, Eurosport, Magnolia, TLC, Animal Planet and ID, among other brands.

John Stankey

AT&T CEO John Stankey said: “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. It will support the fantastic growth and international launch of HBO Max with Discovery’s global footprint and create efficiencies which can be reinvested in producing more great content to give consumers what they want.

“For AT&T shareholders, this is an opportunity to unlock value and be one of the best capitalised broadband companies, focused on investing in 5G and fibre to meet substantial, long-term demand for connectivity. AT&T shareholders will retain their stake in our leading communications company that comes with an attractive dividend. Plus, they will get a stake in the new company, a global media leader that can build one of the top streaming platforms in the world.”

Zaslav added: “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 transaction is expected to close by mid-2022, subject to approval by Discovery shareholders and customary closing conditions, including receipt of regulatory approvals.

Jason Kilar

HBO Max and Discovery+ are already expanding around the world, going up against competitors such as Netflix, Amazon Prime and Disney+ in the so-called Streaming Wars. Having launched in January, Discovery+ has now surpassed 15 million subscribers, according to the company’s latest quarterly results.

The merger marks something of a U-turn for AT&T, which made a big bet on media only a few years ago, saddling itself with huge debts in the process. More recently, WarnerMedia CEO Jason Kilar has led a major restructuring of the business as it shifts away from cable and broadcast towards streaming.

Meanwhile, Zaslav has led Discovery through several big IP moves in recent years, including a US$14.6bn buyout of US cablenet operator Scripps Networks Interactive and its extensive back catalogue of home and lifestyle content in 2018, a US$1.4bn multi-year rights deal for coverage of the Olympics in Europe, and a buyout of European sportscaster Eurosport from France’s TF1. It has also invested heavily in live rights to golf, cycling and other sports.

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