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Discovery and WarnerMedia merge, creating one of the largest U.S. media companies

AT&T's move to spin off WarnerMedia and combine it with Discovery comes as Netflix and Disney have shown the upside of direct-to-consumer streaming platforms.
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AT&T announced on Monday that WarnerMedia and Discovery are merging to become a new company that will immediately become one of the largest U.S. media businesses.

The new company is the result of AT&T spinning off WarnerMedia, which owns a variety of major media properties including CNN, TBS, TNT, Warner Bros. film and television studio and HBO, into a new company. That company is merging with Discovery, which owns Discovery Channel, Animal Planet, TLC, the Food Network and various other media properties.

AT&T will receive $43 billion worth of cash, debt securities and WarnerMedia's retention of debt. The new company will be led by Discovery CEO David Zaslav.

It's a major deal that allows AT&T to undo one of the largest media acquisitions in history: the 2016 purchase of Time Warner for $109 billion. AT&T billed the deal as a chance to combine its telecommunications business, consumer data and media offerings in a way that could compete with major media and tech companies.

The move to spin off Time Warner, later named WarnerMedia, and combine it with Discovery comes as Netflix and Disney have emerged as the dominant players in the direct-to-consumer streaming market.

In its press release, AT&T said that the new company will be better positioned to compete in the increasingly important streaming world.

"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," AT&T CEO John Stankey said in the press release. "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."

AT&T shareholders will own 71 percent of the new company, with Discovery shareholders getting 29 percent, according to an AT&T press release. The deal also allows AT&T to unload some of its debt, which had become the focus of analyst concern on Wall Street.

Stankey said the deal would help AT&T refocus.

"For AT&T shareholders, this is an opportunity to unlock value and be one of the best capitalized broadband companies, focused on investing in 5G and fiber to meet substantial, long-term demand for connectivity," he said.

The deal will need to receive regulatory approval, which can be a major hurdle. AT&T's acquisition of Warner Media took almost two years to gain government approval.

The new AT&T-Discovery company will vie with Netflix, Disney, Amazon, NBCUniversal, CBS and many more media companies that have invested heavily in streaming services. NBCUniversal is the parent company of NBC News.

The stock prices of AT&T and Discovery each jumped in pre-market trading, about 4 percent and 14 percent, respectively.

The deal has also sparked intrigue in the media industry for what it could mean about the leadership of the companies going forward.

Jason Kilar, the current CEO of WarnerMedia, was not informed about the deal until a few days ago, and was even given the go-ahead from AT&T to proceed with a Wall Street Journal profile about his leadership of the company, two people with knowledge of the matter said. Kilar is now working to negotiate his exit, one person familiar with his plans said.

Kilar joined WarnerMedia as its top executive in April 2020 as the company was ramping up its digital efforts. Kilar co-founded Hulu and served as its CEO until 2013.