AT&T Inc is preparing to spin off its media business and merge it with Discovery Inc in a tax-friendly deal, people with knowledge of the matter said, a surprise reversal for a company that spent US$85 billion to acquire the assets less than three years ago.
A deal could be announced as soon as this week, said the people, who asked not to be identified because the information is private.
The transaction would be structured as a so-called Reverse Morris Trust, or a merger with another company that is structured to be tax-free, one of the people said.
The idea is to combine Discovery’s reality-TV empire with AT&T’s vast media holdings, building a business that would be a formidable competitor to Netflix Inc and Walt Disney Co.
Any deal would mark a major shift in AT&T’s strategy after years of working to assemble telecommunications and media assets under one roof. AT&T gained some of the biggest brands in entertainment through its acquisition of Time Warner Inc, which was completed in 2018.
Through its WarnerMedia unit, AT&T owns CNN, HBO, Cartoon Network, TBS, TNT and the Warner Bros studio.
Discovery, backed by cable mogul John Malone, controls networks such as HGTV, Food Network, TLC and Animal Planet.
The talks likely value the AT&T business at more than US$50 billion including debt, Dow Jones reported, citing people familiar with the matter.
The people said that the talks could still fall apart.
The new company is expected to be led by Discovery chief executive officer David Zaslav, it reported.
Zaslav has helped Discovery grow through acquisitions, including a purchase of HGTV owner Scripps Networks Interactive Inc that closed in 2018.
Discovery’s class A shares have risen more than 18 percent this year, valuing the company at almost US$24 billion. AT&T has gained 12 percent, giving it a market capitalization of US$230 billion.
The companies are still negotiating the structure of a transaction, and details could change or the talks could fall apart, the people said. Representatives for AT&T and Discovery declined to comment.
The Discovery deal could give the combined company enough programming to compete with Netflix and other streaming services in a global battle over the future of entertainment.
In 2019, Disney bought 21st Century Fox Inc’s entertainment assets for US$71 billion, largely to gain enough muscle to constantly refresh its streaming services. It launched Disney+ in November 2019 and already has more than 100 million subscribers.
Discovery and AT&T’s media unit, WarnerMedia, have made their own forays into streaming. Discovery has debuted Discovery+, which has a vast array of unscripted reality shows.
Meanwhile, AT&T has made a big bet on HBO Max, which launched a year ago and includes HBO programming and movies from AT&T’s Warner Bros studio. Both companies are quickly expanding their streaming services around the world.
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