By Nathalie Voit
AT&T announced on Feb. 1 that it will spin off WarnerMedia to focus on developing its wireless network and streamline costs.
The $43 billion transaction will spin off 100% of AT&T’s interest in WarnerMedia to AT&T’s existing shareholders in a pro-rata distribution to merge its media properties with Discovery, according to a press release. The deal will form a new company, Warner Bros. Discovery, Inc. (WBD), in the second quarter of 2022, AT&T said.
AT&T shareholders will own 71% of the new company and receive 0.24 tax-free shares of Warner Bros. Discovery for each AT&T share they hold, the board of directors said. The telecom giant will have approximately 7.2 billion outstanding shares at the close of the transaction. AT&T shareholders’ volume of AT&T shares will remain unaffected.
AT&T will also slash its annual dividend by nearly half to $1.11 per share, down from $2.08. The payout is at the lower end of its $8 to $9 billion guidance, according to the announcement.
The board was on the fence about whether to spin off or split off WarnerMedia, contemplating the pros and cons as late as last week’s Q4 earnings call, according to Variety. A split-off would have enabled shareholders to trade AT&T shares for stock in WarnerMedia-Discovery instead of doling out pro-rate shares to AT&T shareholders in WBD.
The board finally decided on a spin-off.
“In evaluating the form of distribution, we were guided by one objective — executing the transaction in the most seamless manner possible to support long-term value generation,” said AT&T CEO John Stankey in a statement Tuesday.
“We are confident the spin-off achieves that objective because it’s simple, efficient, and results in AT&T shareholders owning shares of both companies, each of which will have the ability to drive better returns in a manner consistent with their respective market opportunities.”
“We believe that the remaining AT&T and the new WBD are two equities that the market will want to own, and the markets to support those equities will develop,” he added. “Rather than try to account for market volatility in the near-term and decide where to apportion value in the process of doing an exchange of shares, the spin-off distribution will let the market do what markets do best. We are confident both equities will soon be valued on the solid fundamentals and attractive prospects they represent.”
As of pre-market trading Thursday, AT&T shares are up 0.5%, following a slight dip on Tuesday. Shares of Discovery are up nearly 2% Thursday morning.
