AT&T to Spin Off WarnerMedia in $43 Billion Discovery Media Merger, Cuts Dividend

AT&T had contemplated a split-off, rather than a spin, of WarnerMedia. In that scenario, shareholders would have the option to exchange AT&T shares for stock in WarnerMedia-Discovery."To execute a split, especially one of this size, it would require some value leakage to execute that and actually get the shares placed,"."I'm not sure I'm really a big fan of that value leakage dynamic right now and being second guessed on it.

Spinning WarnerMedia allows AT&T to focus its capital expenditure on building out its wireless network rather than spending on entertainment content to compete with Netflix, Disney and other streaming services. AT&T anticipates spending about $20 billion in capital expenditures this year to invest more heavily into fiber to the home broadband internet services and expanding its 5G wireless footprint.

The transaction will also help reduce AT&T's heavy debt load. It ended the fourth quarter with net debt of $156.2 billion, giving it a net debt to adjusted EBITDA ratio of about 3.22 times. AT&T said it expected the debt ratio to drop to 2.5 times by the end of 2023 and that it would consider share buybacks if the ratio is reduced further.

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