AT&T slashes dividend, says it will spin-off WarnerMedia as part of Discovery merger
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AT&T (NYSE:T) said on Tuesday that it would spin-off its interest in WarnerMedia as part of its merger with Discovery (NASDAQ:DISCA), with the deal expected to close in the second quarter.
As part of the spin-off, AT&T will get $43 billion in a combination of cash and other considerations, and AT&T shareholders will own 71% of the new company, Warner Bros. Discovery. Discovery shareholders will own the remaining 29% of the company on a fully diluted basis.
Last week, AT&T (T) shares fell after Chief Executive John Stankey mentioned that he was in favor of a spin-off instead of a split-off.
A split-off is a relatively rare option, exchanging shares in a subsidiary for shares in the parent company. It would also heavily reduce AT&T's outstanding shares, and those would require a heavy discount to move.
AT&T has given serious consideration to a split-off as "we'd like to possibly, over time, reduce the AT&T share count and this may be one way to do that," Stankey said in an interview with CNBC last month.
In addition, AT&T's board of directors said it will have an annual dividend of $1.11 per share following the close of the deal, down from $2.08 per share, which would give it a 4.3% yield as of yesterday's closing share price of $25.50.
AT&T shares sunk in pre-market trading on Tuesday, down nearly 5% to $24.24.
âIn evaluating the form of distribution, we were guided by one objective â executing the transaction in the most seamless manner possible to support long-term value generation,â said AT&T CEO John Stankey in a statement announcing the transaction. âWe are confident the spin-off achieves that objective because itâs simple, efficient and results in AT&T shareholders owning shares of both companies, each of which will have the ability to drive better returns in a manner consistent with their respective market opportunities."
After the deal closes, each AT&T shareholder will receive 0.24 shares of the new Warner Bros. Discovery common stock for each AT&T share they own.
Warner Bros. Discovery will trade on the NASDAQ under "WBD" ticker symbol, with Discovery shareholders being converted to the WBD ticker, with one vote per share. AT&T will remain on the New York Stock Exchange under the "T" ticker.
Last week, AT&T reported fourth-quarter earnings that beat Wall Street estimates, led by growth in wireless users and HBO subscribers.