There will be plenty of time for pundits, analysts and investors to diagnose and debate why AT&T (T) couldn't successfully drive value from a media business (then known as Time Warner) it spent a whopping $85 billion on to gobble up just three years ago.
But most outsiders would agree on one thing: AT&T sent a good bit of shareholder value up in smoke by trying to be the king of content and distribution. Driving value from the now WarnerMedia portfolio will soon fall to a new partner, however.
AT&T said Monday it will spin off its media division WarnerMedia and merge it with Discovery. The move joins household name media brands such as WarnerMedia's HBO and CNN with Discovery's HGTV, Animal Planet, Food Network, and TLC under one house.
"John [CEO John Stankey] road shotgun on both of the big deals they have now unwound in the last few months [Time Warner and DirectTV]. He was very much a driver of the DirectTV deal and very much a driver of the Time Warner deal," explained MoffettNathanson media analyst Craig Moffett on Yahoo Finance Live.
Stankey assumed the CEO position in June 2020. Before that he worked closely with then AT&T CEO Randall Stephenson as president and COO and supporter of the splashy acquisitions of DirectTV and Time Warner. Stankey inked a deal in February to sell a stake in the struggling DirectTV.
BURBANK, CALIFORNIA - OCTOBER 29: John Stankey, President & Chief Operating Officer of AT&T and Chief Executive Officer of WarnerMedia, speaks onstage at HBO Max WarnerMedia Investor Day Presentation at Warner Bros. Studios on October 29, 2019 in Burbank, California. (Photo by Presley Ann/Getty Images for WarnerMedia)Presley Ann via Getty Images
The newly combined WarnerMedia and Discovery would form one of the largest global streaming platforms in direct competition with Netflix and Amazon. Proceeds from the deal for AT&T will go towards paying down a considerable debt-load of more than $160 billion, which will help as the soon to be pure-play telecom giant builds out its 5G network. AT&T is set to receive $43 billion in a combination of cash, debt securities and WarnerMedia's retention of certain debt, according to the press release announcing the deal.
Discovery President and CEO David Zaslav is set to lead the newly combined company following the close of the transaction, which is expected to take place in mid-2022. The combined company is targeting an annual $52 billion in sales and $14 billion in adjusted EBITDA (earnings before, interest taxes depreciation).
As for the legacy of AT&T's media foray, Moffett is clear-headed on it.
"It is rare that you see a management team and a board actually acknowledge so clearly that they made a terrible mistake and that they're willing to undo it. So I actually give them some credit for it. Now it's not to say it doesn't leave behind a tremendous amount of wreckage, right? I mean they spent $175 billion for these assets and then three years later, they are unwinding those positions for what is kind of in theory, i guess, about $80 billion or so. So they destroyed a ton of value, but not many companies are willing to admit they made a mistake right away," Moffett said.
A very costly mistake. But what is a few billions of dollars between media friends?