AT&T explained the final details of its planned spin-off of WarnerMedia, cutting its dividend nearly in half in the process.
The telecommunications and media company revealed its plans to shed the WarnerMedia division from its operations nearly one year ago but hadn’t fully outlined how it would structure the transaction. It has now been revealed that the divestiture will be handled via a spin-off of WarnerMedia that will be followed by a merger of the company with the Discovery division to create Warner Bros. Discovery, Inc. (NASDAQ: WBD).
The transaction will be handled through a pro-rata stock distribution that will see shareholders receiving 0.24 shares of the new company for each share of AT&T they own. The ultimate result will be the distribution of 7.2 billion shares, with AT&T’s existing shareholders retaining 71% ownership of WBD.
AT&T’s stock was down about 4.5% during mid-afternoon trading.
While AT&T had previously contemplated a split of the WarnerMedia and Discovery brands, rather than a spin-off, company CEO John Stankey told CNBC that it decided against it due to the potential for “value leakage” caused by associated tax expenses such a transaction would incur. A spin-off, however, is tax free.
The transaction may not have any impact on AT&T’s tax bill, but it had a major impact on its dividend, which dropped from $2.08 per share to $1.11 per share as a result of the financial wrangling and new WBD share distribution. This drops it to the low end of the $8 billion to $9 billion range mentioned in its recently-released Q4 2021 financials.
AT&T’s press release on the matter expounded on the freedom the spin-off will give it to refocus on its telecommunications business. Specifically, it plans to undertake an “increased investment in 5G and fiber,” with the dual goals of bringing its C-Band 5G to 200 million people across the US by the end of 2023 and its fiber-based network to 30 million customer locations before 2025 is over.
The company still expects the transaction to close sometime during the second quarter of 2022.
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