by Kenneth Li
(Reuters) – AT&T on Tuesday announced it was splitting off WarnerMedia in a $43 billion (38.16 billion euros) deal to bring its media business closer to that of Discovery.
The spin-off is expected to be effected through a distribution of securities to AT&T shareholders who will receive 0.24 shares for each AT&T share held. At the end of the operation, they will hold 71% of the new company called Warner Bros Discovery.
The US telecom giant lowered the dividend paid to shareholders to $1.11 per share, from $2.08, which puts the total amount proposed at the bottom of the range of $8 billion to $9 billion that had been anticipated. AT&T.
In trading before the opening of Wall Street, AT&T was down 5%.
This agreement had been announced at the beginning of 2021 but certain financial details were only disclosed on Tuesday.
“We are confident that both groups will soon be valued based on strong fundamentals and the attractive prospects they represent,” said AT&T Chief Executive John Stankey.
The group plans to invest nearly $20 billion this year to develop high-speed internet services in home fiber optics and expand its business in 5G mobile telephony.
The transaction will help reduce AT&T’s heavy indebtedness which ended the fourth quarter with net debt of $156.2 billion, giving it a net debt to adjusted EBITDA ratio of approximately 3.22.
AT&T said it expects its debt ratio to drop to 2.5 by the end of 2023 and said it is considering stock buyback programs if the ratio is reduced further.
Warner Bros. Discovery will have to catch up with its great rival Netflix in the video on demand sector. In the fourth quarter, WarnerMedia’s HBO Max streaming service saw faster growth in the United States, ending 2021 with 74 million subscribers.
(Report Kenneth Li, French version Laetitia Volga, edited by Blandine Hénault)