It’s Official: AT&T and Discovery Detail Merger Plans

AT&T and Discovery Inc. have made it official, unveiling their plan to merge their media and entertainment assets in a deal that will bring together TV channels like CNN, TBS, TNT, HGTV, Food Network and Discovery Channel, the Warner Bros. film studio, and streaming services HBO Max and Discovery+.

Under the terms of the deal, WarnerMedia and Discovery will merge through a complex all-stock move called a Reverse Morris Trust transaction, that would see AT&T receive $43 billion in cash, debt securities, and WarnerMedia’s retention of certain debt, and AT&T’s shareholders would receive stock representing 71% of the new company.

Discovery CEO David Zaslav will lead the company as CEO, and there is no word about a role for WarnerMedia CEO Jason Kilar. The companies say the deal will close in 2022, subject to shareholder and regulatory approvals.

The combined company is expected to have $52 billion in revenue in 2023, and the companies say there will be $3 billion in cost synergies through the combination. AT&T, meanwhile, will focus its efforts on 5G and fiber broadband.

“This agreement unites two entertainment leaders with complementary content strengths and positions the new company to be one of the leading global direct-to-consumer streaming platforms,” said AT&T CEO John Stankey in a statement. “It will support the fantastic growth and international launch of HBO Max with Discovery’s global footprint and create efficiencies which can be re-invested in producing more great content to give consumers what they want.”

“During my many conversations with John, we always come back to the same simple and powerful strategic principle: these assets are better and more valuable together. It is super exciting to combine such historic brands, world class journalism and iconic franchises under one roof and unlock so much value and opportunity,” Added Zaslav. “With a library of cherished IP, dynamite management teams and global expertise in every market in the world, we believe everyone wins…consumers with more diverse choices, talent and storytellers with more resources and compelling pathways to larger audiences, and shareholders with a globally scaled growth company committed to a strong balance sheet that is better positioned to compete with the world’s largest streamers.”

The merger is just the latest example of consolidation in the media and entertainment space in recent years, as companies jockey to scale up in order to take on streaming video giants like Netflix and, to a certain extent, YouTube.

In December 2019, Viacom and CBS re-merged after being split by owner Sumner Redstone in 2006. The newly-crowned ViacomCBS launched a new streaming service, Paramount+, earlier this year.

In early 2019, The Walt Disney Co. acquired the entertainment assets of 21st Century Fox in a $71.3 billion blockbuster deal that paved the way for Disney+. Discovery previously bulked up in 2018 through the $14.6 billion takeover of Scripps Networks Interactive, the owner of Food Network and HGTV.

Meanwhile, Comcast in 2011 acquired a majority stake in NBCUniversal in 2011 before taking full ownership in 2013. Analysts including MoffettNathanson’s Michael Nathanson and LightShed’s Rich Greenfield have argued that NBCUniversal and WarnerMedia would make logical merger partners, though with the Discovery deal now announced, Comcast/NBUniversal would have to make an alternative offer.

The company has a history of doing so. For example, when Disney acquired Fox, Comcast swooped in and acquired Fox’s stake in Sky after a bidding war with Disney.

“Discovery + WarnerMedia would create a direct-to-consumer player with the content bonafides to be one of the best global players,” said Wells Fargo analyst Steven Cahall. “The combined content assets could push this potential company into the direct-to-consumer winners’ circle as HBO and Warner Bros. are great brands and libraries, respectively, while Discovery has unique lifestyle content and some of the best international reach in media.” He concluded: “In global direct-to-consumer, it may not be a winner take all market, but it’s probably a winners take most market, and this is the sort of scale that’s required.”

In an hour-long press briefing, Discovery CEO David Zaslav and AT&T CEO John Stankey outlined plans for the companies’ $43 billion merger.

“We’re going to be one company,” Zaslav said. “One company, one culture, one mission.” As to the timing of the deal, Stankey said he felt the entertainment portfolio had achieved “escape velocity” in recent months. Given the broader objectives of AT&T, which has been investing in 5G and other technology for its broadband and wireless networks, he added, “It became clear to me that we were going to need a different capital structure.”

The transaction, which burst into view as a strong likelihood just a day ago, took shape earlier this year during covert meetings between Zaslav and Stankey in New York, the execs said. It will see AT&T own 71% of the combined entity and Discovery the remaining 29%, with 2023 revenue projected at $52 billion. It brings entertainment and media brands like HBO, HGTV, Warner Bros and Food Network under the same roof and creates a larger-scale player to challenge Netflix. Zaslav will run the company, whose official name will be revealed in the coming days.

The makeup of the executive suite is a looming question. Asked two separate times about the status of WarnerMedia CEO Jason Kilar in the new configuration, the executives said he remains in his position for the time being. But they didn’t offer much more of a vote of confidence than that. Kilar, a former Amazon exec and Hulu CEO, took the reins at WarnerMedia in May 2020.

“David’s got decisions he’s gotta make across a broad cross-section of how he wants to organize the business and who will be in what roles moving forward in this transition period,” Stankey said. Zaslav noted that he was Kilar’s colleague at NBC during his run as a sales exec, as Kilar was running Hulu, initially a co-venture backed by NBC and Fox. “Jason is a fantastic talent,” Zaslav said.

There will be $3 billion in synergies from the deal, Zaslav said. He noted that after Discovery bought Scripps Networks Interactive for $14.6 billion in 2018, the management team that eventually took shape drew from both companies’ ranks. “It was a real mixture, like half and half,” Zaslav recalled. With the new entity, he said, “We’re going to get really aggressive and drive productivity.”


While there will be “great synergy in finding the best and the brightest people,” Zaslav added, “the objective is, attack that business with productivity and talent, great people and hard work. But then spend more money on content.” The budget will start at $20 billion, he said, “and we want to invest in more.”

CNN will remain in the corporate fold, Zaslav said, and the company plans to be “the world leader in news.” Ever since AT&T proposed buying Time Warner in 2016, the fate of the news network has been a question in Washington and on Wall Street. Former President Donald Trump long tangled with the network and it was during his administration that the Department of Justice filed an antitrust suit to try to block the Time Warner deal. A federal judge rejected the complaint, and an appellate court supported the ruling.

Jeff Zucker, who has run CNN for nearly a decade, has planned to step down at the end of the year. Given his ties to Zaslav (the two were another pair who connected at NBC), there is a chance he could extend his run at the new company. That scenario was not discounted by Zaslav and Stankey, but they didn’t offer anything definitive.

In his introductory remarks, Zaslav acknowledged the Warner Brother by name, harking back to the origins of the company nearly a century ago. That gesture pointed to a significant piece of real estate Zaslav will now oversee (from an office on the Warner Bros lot, he announced): the film operations at Warner Bros. Left unaddressed during the hour with reporters was the company’s film strategy and plans to address relationships with talent and theater owners bruised by the decision by Kilar to release movies day-and-date on HBO Max and in theaters. The plan has goosed HBO Max subscriptions and helped generate sizable box office, but has clouded the outlook on where theatrical windows will settle.

As to streaming, both partners have recently entered the direct-to-consumer space in significant ways, with Discovery+ and HBO Max. The execs were non-committal as to whether they would combine the services or bundle them as separate products. Zaslav said all options would be explored. “We’ll see over the next few years as we learn more about what consumers want and how they want it,” he said.