AT&T splits WarnerMedia and merges it with Discovery

New York (CNN Business) – The streaming race is about to get even more competitive.

On Monday morning, AT&T and Discovery, Inc. announced an agreement under which AT & T’s WarnerMedia will split and merge with Discovery into a new independent media company.

The deal, subject to regulatory approval, will merge two content majors, including HBO Max and streaming services discovery +. CNN will be included in the transaction.

Discovery CEO David Zaslav will lead the merged business, according to Monday’s announcement. “Executives from both companies” will be in “key leadership roles,” according to a press release.

On one level, the union is a logical way to compete with Netflix and Disney, the two best streaming players.

On another level, it is also a complex way for AT&T to develop its 2016 offering for Time Warner, which took effect in 2018, with the assets called WarnerMedia. The companies said they expect this agreement to take effect in mid-2022.

AT&T shareholders would get a majority of the company’s shares after the merger, at 71%, while Discovery shareholders would get 29%.

A spin-off will help AT&T prioritize its wireless businesses and pay off its massive debt load. The statement said that “AT&T would receive US $ 43 billion (subject to adjustment) in a combination of cash, debt securities and the retention of certain debt by WarnerMedia.”

Shares of AT&T were up more than 3% pre-market, while shares of Discovery were up 16%.

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Leading Wall Street analysts had been predicting, and in some cases encouraging, this kind of move. Earlier this year, AT&T reached an agreement to split its DirecTV satellite business with a significant loss of the 2015 purchase price.

And another telecommunications giant, Verizon, also threw in the towel on its content efforts, agreeing to sell Yahoo and AOL for $ 5 billion.

Of course, the world of media looks very different today than it did a few years ago. Investors focus more on streaming with each passing year.

Bloomberg News broke the news of the impending deal on Sunday, saying that Warner plus Discovery “would be a formidable competitor to Netflix and Disney.”

Discovery’s nonfiction-focused streaming service launched in January, using a library of shows from channels like TLC and Animal Planet. At the time, Zaslav told CNN that discovery + was a “great addition to someone who has Disney or Netflix, or HBO, Disney and Netflix.”

When CNN’s chief business correspondent Christine Romans asked how many streaming services Americans would have, Zaslav said, “I think people will have three or four.”

Zaslav also emphasized the global reach of Discovery. HBO Max, currently available in the US, is about to give an international boost.

“This agreement unites two entertainment leaders with complementary content strengths and positions the new company as one of the leading global direct-to-consumer streaming platforms,” ​​AT&T CEO John Stankey said in a statement.

“It will support the fantastic growth and international launch of HBO Max with Discovery’s global presence and create efficiencies that can be reinvested in producing more great content to give consumers what they want.”