AT&T to exit media business, announces a $43 billion deal to merge WarnerMedia with Discovery

Early this month, Verizon announced it was selling Yahoo (including TechCrunch) and other media assets to private equity firm Apollo for $5 billion. The sale will see online media brands under the former Yahoo and AOL umbrellas like TechCrunch, Yahoo Finance and Engadget go to Apollo at much lower valuations than they commanded just a few years ago.

Now, U.S. telecom giant AT&T is following in Verizon’s footsteps. AT&T, owner of HBO and Warner Bros Studios, and Discovery, home to lifestyle TV networks such as HGTV and TLC, announced today it has reached a deal to combine its content unit WarnerMedia with Discovery to create a standalone global entertainment and media business. The deal will create $150 billion streaming giant with Discovery

According to the news release, the new company will compete globally in the fast-growing direct-to-consumer business — bringing compelling content to DTC subscribers across its portfolio, including HBO Max and the recently launched discovery+.

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. 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.

As part of the agreement, AT&T will offload its $85 billion acquisition of Time Warner, which closed just under three years ago, and form a new media company with Discovery. The deal would create a new business, separate from AT&T, that could be valued at as much as $150 billion, including debt, according to a report from The Financial Times.

In connection with the spin-off or split-off of WarnerMedia, AT&T will receive $43 billion (subject to adjustment) in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt. The new company expects to maintain an investment-grade rating and utilize the significant cash flow of the combined company to rapidly de-lever to approximately 3.0x within 24 months, and to target a new, longer-term gross leverage target of 2.5x-3.0x.