Why AT&T shares fell, is a deal with Discovery profitable?
Over the past two trading sessions, AT&T shares have risen in value, but on Tuesday, they lost 7.9%. Let’s see what this deal means for the company and why the stock fell.
As a reminder, AT&T is spinning off WarnerMedia, which will merge with Discovery. AT&T will own 71% of the joint venture. The merger will take place in 2022, and the current Discovery CEO, David Zaslav, will head the merged company.
Why stocks fell
AT & T will receive $ 43 billion from this transaction – it to spend it on reducing the debt burden. March 31, 2021, the company’s net debt was $ 168.9 billion.
However, management said that after the separation of the media business, cash flow (FCF) would decrease, due to which dividends will be revised. Now payments to shareholders will account for 40% of FCF, which could amount to $ 20 billion. Rewards will go to about 8 billion against 15 billion last year, about $ 1.11 per share.
What are the prospects?
In 2023, the joint project generates $ 53 billion in revenue, $ 14 billion in EBITDA, and about $ 65 billion in debt. Thus, the new company will be the second-largest player in the media business after Walt Disney.
Profits will continue to be generated by cable networks and the Hollywood studio. Streaming services HBO Max and Discovery + will merge but won’t be profitable for a few more years. Is due to both companies’ plans to increase the number of customers, which requires an infusion of funds for content creation—the peak unprofitability for HBO Max in 2022 and the exit to profit – in 2025.
International expansion will also bear fruit in the coming years.
AT&T will be able to focus on advancing mobile communications, internet connectivity, and 5G deployment, keeping up with Verizon and T-Mobile US. AT&T will have a low debt burden in recent years, potentially freeing up cash for investments in telecommunications. The company now expects to spend $ 24 billion a year on telecom – $ 2 billion more than before.
As a result, AT&T has the potential to increase the number of customers in the telecom business and improve profitability. The dividend cut is short-term negative, but the long-term outlook is becoming more transparent and more positive.
