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AT&T (T) Mulls Media Assets Spin-Off With Discovery Deal
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In a radical shift to its corporate strategy, AT&T Inc. (T - Free Report) is reportedly mulling to spin off its media assets and merge them with Discovery, Inc. amid continuous cord-cutting in U.S. households. The transaction is likely to be structured as Reverse Morris Trust that refers to a merger with another company in a tax-free transfer.
The dramatic turn of events after acquiring the Time Warner media assets in 2018 for about $85 billion is perhaps triggered by high investments required for 5G deployment and expansion of fiber-optics footprint across the country. The transaction is also expected to enable AT&T to reduce its huge debt burden and focus on core businesses as it strained its coffers for the acquisition of 80MHz of mid-band spectrum in the C-Band auction for a total consideration of $27.4 billion in order to expand coverage and improve network connectivity.
Notably, AT&T completed the acquisition of Time Warner in June 2018 to form a new business division titled WarnerMedia. The company had then hoped that the vertical merger was the perfect way to move forward as a core communications firm cannot rely exclusively on content, nor can a media firm solely depend on wholesale distribution models to sustain in a dynamic environment. With assets like HBO, CNN and TNT, AT&T's acquisition of Time Warner created new kinds of online videos and opened up avenues for targeted advertisements.
However, AT&T faced a steady decline in linear TV subscribers and legacy services. Moreover, TV content-cost pressure, high programming costs and new video platform expenses eroded margins. In addition, consumers increasingly cancelled pay TV packages for cheaper streaming options from Netflix, Inc. (NFLX - Free Report) , Amazon.com, Inc. (AMZN - Free Report) , Hulu and other services. Despite significant investments and healthy traction in HBO Max streaming platform, AT&T still trailed rivals with 63.9 million global subscribers compared with more than 100 million for Walt Disney Co's Disney+ and 207.6 million for Netflix.
The held-for-sale portfolio includes the various units of the erstwhile Time Warner business namely, Turner, HBO and Warner Bros along with the Regional Sports Networks in the Turner division and Otter Media. On its part, Discovery owns lifestyle TV networks such as HGTV and TLC, along with Food Network and Animal Planet. The combination of the two entities would create a new company that could be valued at $150 billion, including debt, and is likely to be a formidable force to reckon with. Although none of the company’s spokesperson have declined to comment on the ongoing negotiations, persons privy to the discussion have revealed that a deal is likely to be announced soon.
Incidentally, AT&T has been divesting its non-core assets to increase its liquidity and trim debt. The company inked an agreement in first-quarter 2021with private equity firm TPG to divest its U.S. video business. AT&T is likely to receive $7.6 billion from the transaction, while retaining stake within the newly formed DIRECTV. The cash resources are likely to be utilized to augment its network infrastructure throughout the country.
An integrated fiber expansion strategy is expected to improve the broadband connectivity for both enterprise and consumer markets, while steady 5G deployments are likely to boost end-user experience. AT&T plans to deploy 5G+ service in stadiums, arenas and practice facilities across the country by the end of 2021, along with various company-owned retail stores, to revolutionize the shopping experience. In addition, the company aims to launch 5G+ in seven airports while offering secure 5G facilities to the FirstNet network. AT&T remains focused on business transformation efforts to augment operational efficiency and facilitate optimum utilization of resources to enhance value. The company expects this holistic growth policy to add significant customer value and generate healthy ROI across the business.
The stock has gained 9.5% in the past year compared with the industry’s growth of 19%.
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
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AT&T (T) Mulls Media Assets Spin-Off With Discovery Deal
In a radical shift to its corporate strategy, AT&T Inc. (T - Free Report) is reportedly mulling to spin off its media assets and merge them with Discovery, Inc. amid continuous cord-cutting in U.S. households. The transaction is likely to be structured as Reverse Morris Trust that refers to a merger with another company in a tax-free transfer.
The dramatic turn of events after acquiring the Time Warner media assets in 2018 for about $85 billion is perhaps triggered by high investments required for 5G deployment and expansion of fiber-optics footprint across the country. The transaction is also expected to enable AT&T to reduce its huge debt burden and focus on core businesses as it strained its coffers for the acquisition of 80MHz of mid-band spectrum in the C-Band auction for a total consideration of $27.4 billion in order to expand coverage and improve network connectivity.
Notably, AT&T completed the acquisition of Time Warner in June 2018 to form a new business division titled WarnerMedia. The company had then hoped that the vertical merger was the perfect way to move forward as a core communications firm cannot rely exclusively on content, nor can a media firm solely depend on wholesale distribution models to sustain in a dynamic environment. With assets like HBO, CNN and TNT, AT&T's acquisition of Time Warner created new kinds of online videos and opened up avenues for targeted advertisements.
However, AT&T faced a steady decline in linear TV subscribers and legacy services. Moreover, TV content-cost pressure, high programming costs and new video platform expenses eroded margins. In addition, consumers increasingly cancelled pay TV packages for cheaper streaming options from Netflix, Inc. (NFLX - Free Report) , Amazon.com, Inc. (AMZN - Free Report) , Hulu and other services. Despite significant investments and healthy traction in HBO Max streaming platform, AT&T still trailed rivals with 63.9 million global subscribers compared with more than 100 million for Walt Disney Co's Disney+ and 207.6 million for Netflix.
The held-for-sale portfolio includes the various units of the erstwhile Time Warner business namely, Turner, HBO and Warner Bros along with the Regional Sports Networks in the Turner division and Otter Media. On its part, Discovery owns lifestyle TV networks such as HGTV and TLC, along with Food Network and Animal Planet. The combination of the two entities would create a new company that could be valued at $150 billion, including debt, and is likely to be a formidable force to reckon with. Although none of the company’s spokesperson have declined to comment on the ongoing negotiations, persons privy to the discussion have revealed that a deal is likely to be announced soon.
Incidentally, AT&T has been divesting its non-core assets to increase its liquidity and trim debt. The company inked an agreement in first-quarter 2021with private equity firm TPG to divest its U.S. video business. AT&T is likely to receive $7.6 billion from the transaction, while retaining stake within the newly formed DIRECTV. The cash resources are likely to be utilized to augment its network infrastructure throughout the country.
An integrated fiber expansion strategy is expected to improve the broadband connectivity for both enterprise and consumer markets, while steady 5G deployments are likely to boost end-user experience. AT&T plans to deploy 5G+ service in stadiums, arenas and practice facilities across the country by the end of 2021, along with various company-owned retail stores, to revolutionize the shopping experience. In addition, the company aims to launch 5G+ in seven airports while offering secure 5G facilities to the FirstNet network. AT&T remains focused on business transformation efforts to augment operational efficiency and facilitate optimum utilization of resources to enhance value. The company expects this holistic growth policy to add significant customer value and generate healthy ROI across the business.
The stock has gained 9.5% in the past year compared with the industry’s growth of 19%.
We remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>