AT&T shares are down in pre-market trading after the telecom giant said it will spin off WarnerMedia as part of the entertainment unit’s pending $43 billion merger with Discovery.
The company has faced the choice of whether to execute a spinoff or a split — while the financial maneuvers are technical, each has implications for shareholders. AT&T has an unusually large number of individual, rather than institutional, investors. Shares in AT&T fell more than 4% before the start of the official trading day. They have slumped ever since the Discovery deal was announced last May, as have Discovery’s.
When the transaction closes, possibly as soon as next month, AT&T shareholders will own 71% of the Warner Bros. Discovery, the new entity will be called. They will receive 0.24 shares in Warner Bros. Discovery for each AT&T share they own. There will be 7.2 billion shares outstanding of AT&T at that point.
Stocks in Warner Bros. Discovery, which will trade on the ticker symbol “WBD,”The dividend will be paid at $1.11 per share instead of $2.08 per. That’s is at the lower end of a $8 billion to $9 billion range projected by AT&T. Shareholders in AT&T have come to expect a robust dividend over the decades, but that feature has limited the company’s manuverability, especially in a cash-intensive business like streaming.
As WarnerMedia has sought to compete with Disney, Netflix and other entertainment rivals, it has been constrained by AT&T’s dividend obligations.
“In evaluating the form of distribution, we were guided by one objective — executing the transaction in the most seamless manner possible to support long-term value generation,” AT&T CEO John Stankey said in a press release. “We are confident the spin-off achieves that objective because it’s simple, efficient and results in AT&T shareholders owning shares of both companies, each of which will have the ability to drive better returns in a manner consistent with their respective market opportunities.”