Executives on both sides of the $ 43 billion merger between WarnerMedia and Discovery reaffirmed that the deal should close by mid-next year, but otherwise details on the combination that will reshape the media industry remain scarce.
In presentations at a media conference yesterday and today, Discovery CFO Gunnar Wiedenfels and AT&T CFO Pascal Desroches said that they do not expect any regulatory obstacles to the transaction. The telecommunications giant agreed in May to spin off WarnerMedia, which will merge with Discovery into a giant led by Discovery CEO David Zaslav.
Along with an army of other assets, the deal joins HBO Max and Discovery +. Wall Streeter and industry players are excited to see how the streaming services are rolled out and priced. “We have essentially finished our go-to-market strategy,” said Wiedenfels.
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“We aligned our ducks here [but] Of course, as you know, we are currently unable to talk about it, ”he added in response to questions from Jessica Reif Ehrlich, an analyst at Bank of America Merrill Lynch.
Discovery “begins by building our integration management office,” he said. “You can only do as much as you can imagine to close the deal, but I’m very happy with the way the team is set up.” Then as now, the strategy is “aligned with the wishes of the customer”. He confirmed initial cost synergies of around $ 3 billion.
Zaslav is likely to be repressed on the issues at another media conference next week hosted by Goldman Sachs.
AT&T CFO Desroches, former CFO of WarnerMedia, said AT&T was “not more pleased with the way the process went” to unload the $ 85 billion entertainment business it acquired in 2018.
“We are exactly where we envisioned ourselves at this stage of the process and we expect the transaction to close in the first half of 2022. We are therefore very happy with the way it went, ”said Desroches reality. Given the changes in the competitive landscape and the involvement of large tech companies in the media, there is no reason why this merger should not be approved, given the antitrust rules. If you look at the traditional antitrust rules, we feel very comfortable that this is approvable. “
Analyst Dave Barden nudged him gently, “There’s a lot that people don’t know about the deal.”
It’s complicated. “The reverse Morris trust structure you have created could be a dividend or an exchange offer, a mix of both. We don’t know what to do with the $ 43 billion you will receive as a function of the sale in cash. When will we know? “
Desroches said the structure decision will be made closer to the split. “All of the options are on the table and we feel really good about using all of those options to maximize value for shareholders.” As for the $ 43 billion, one purpose of the deal is to pay off debt and discharge the company’s balance sheet.
AT&T caused an uproar among its investors when it announced plans to cut its historically reliable dividend after the spin-off. “The retail investment community that owns AT&T, who owns the majority of AT&T, is quite disappointed with this. What can you do to sell this idea? [you’re] Bard asked.
Desroches said the lower payout was “obviously better than any of our peers and better than most companies”. And he said AT&T shareholders could see benefits in a WarnerMedia spin-off as they could end up receiving shares in the new company. “This is” an opportunity [for shareholders] Achieve growth by holding Warner Bros. Discovery stock, Desroches said. “This is an opportunity to achieve really nice increases in value through the appreciation of new media assets.”
AT&T without WarnerMedia and without DirecTV “looks like an old-fashioned telecommunications company,” said Barden. So his customers ask him how Telekom will generate the promised cash flow of 20 billion US dollars.
Desroches said lower debt will result in annual interest savings of at least $ 2 billion. He cited remaining cash from the DirecTV deal, the distribution of content for HBO Max (about $ 4 billion), and its own mid-range digital growth in EBITDA.
“If you take all of these pieces, you should come to $ 20 billion.”