AT&T to Merge its Warner Media Assets with Discovery and cut its dividend. AT&T announced on May 17th that it had reached a deal to spin off Warner Media and combine it with Discovery. The remaining company AT&T will focus on it’s 5G wireless and fiber broadband business.
AT&T Cuts the Dividend
AT&T has been a long-term dividend aristocrat, but that will no longer be the case after the merger in 2022. The change will allow AT&T to reduce its debt, which equals less risk while reducing the dividend by almost 50%.
AT&T to Merge with Warner Media with Discovery
Warner Media and Discovery’s media business will merge. They will create a new company. At this time the name of the new company is unknown. In exchange AT&T will receive cash, which will allow them to pay down debt.
AT&T spent $85Billion to acquire Time Warner. They will receive $43Billion for Time Warner from the merger with Discovery.
AT&T no longer wants to own Warner Media, which has been looked at as an asset to many of its shareholders.
Shareholders will hold a 7% stake in the new entity, while Discovery shareholders own a 29% stake. Shares in the new company will be received by shareholders sometime in the future. Leaving AT&T as a telecommunications company.
CEO John Stankey
CEO John Stankey stated in an interview on CNBC about a month earlier that the dividend was not a problem and that the dividend was safe due to free cash flow. Before investing in a company you want to trust the CEO and know what business you’re investing in.
Many people invested in AT&T for the dividend and the possibility of growth with Warner Media. Many thought they had a great opportunity, Warner Media is known all over the world.
There are many unknowns on the future of the new company, but it will be separate from AT&T. The deal is expected to close in 2022.
After hearing the news of AT&T cutting its dividend, I promptly sold all my shares.
Disclosure: I have no position in the stock mentioned in this article and have no plans to initiate any position within the next 72 hours. I wrote this article myself. It is solely my opinion. I am not receiving compensation from it and I do not have a business relationship with the company in this article.
I’m not a financial advisor. I’m a financial friend.