Discovery investors voted for WarnerMedia to acquire from AT&T for $43 billion to create Warner Bros. Discovery during a special shareholder meeting on Friday, one of the last formal steps before closing the deal.
The deal, which is a subsidiary of AT&T’s WarnerMedia, is expected to close early in the second quarter, with insiders telling Variety that the estimated date is between April 11 and 28. The merger has already received approval from the US Department of Justice and the boards of directors of AT&T and Discovery.
WarnerMedia owns HBO, HBO Max, CNN, Warner Bros., DC Films, New Line Cinema, TBS, TNT, TruTV, Cartoon Network/Adult Swim, Turner Sports and Rooster Teeth and other brands, and co-owns The CW Network. along with Paramount. Discovery is the parent of Discovery Plus, Discovery Channel, HGTV, Food Network, TLC, Investigation Discovery, Travel Channel, Turbo/Velocity, Animal Planet, Science Channel and OWN (Oprah Winfrey Network).
Discovery chief David Zaslav will become president and CEO of the newly merged Warner Bros. Discovery, and WarnerMedia CEO Jason Kilar is expected to step down. Zaslav’s first major WBD employee was Chris Licht as CNN’s new executive after Jeff Zucker was fired after a WarnerMedia investigation found he did not disclose the consensual relationship with now-departed CNN marketing director Allison Gollust.
Discovery ended 2021 with $4 billion in cash on its books and generated about $2.4 billion in free cash flow for the year. Warner Bros. Discovery will take on significant debt once the deal closes, with Discovery’s executives promising to lower the leverage ratio from around 4.5x earnings immediately after closing to 2.5x to 3x earnings within two years. At the conclusion of the WarnerMedia spin-off, AT&T expects to raise $43 billion (and the new WBD will take on roughly $43 billion of additional debt). AT&T plans to use proceeds from the WarnerMedia division to pay off its net debt, which stood at $156.2 billion at the end of 2021.
Because Discovery conducted a largely ceremonial shareholder survey, AT&T signaled the start of a new chapter less than four years after acquiring WarnerMedia, formerly known as Time Warner. The telecoms giant held a virtual investor conference at the same time as the Discovery vote to unveil its post-spin strategy. The entertainment push was spearheaded by the previous regime, led by former AT&T chairman and CEO Randall Stephenson. His successor, John Stankey, has been cleaning up debt and destruction ever since.
Stankey has hedged his bets on offloading WarnerMedia with a deal that transfers control to the Discovery camp but leaves its shareholders with 71% of the enlarged company.
Shares of Discovery traded at $24.85 just after 10:50 am ET Friday, while shares of AT&T traded at $23.55 a share.
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