🤝 Discovery: AT&T Merger in Store?
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🤝 Discovery: AT&T Merger in Store?
Reports suggest that telecom major AT&T (T) is nearing a merger deal with Discovery (DISCA) for its media assets. The deal may be instrumental in reducing AT&T's massive debt pile; it can add more ammunition to Discovery's arsenal to take on the likes of Netflix (NFLX) and Disney (DIS). (Tweet This)
AT&T's media assets include CNN, TNT, TBS, and Time Warner’s content, including HBO and HBO Max.
A Damp Squib
AT&T had embarked on a shopping spree, shelling out billions of dollars in acquiring media assets. It aimed to compete against streaming giants Netflix, Amazon, and Disney in an already crowded market. The $108.7B merger with Time Warner in 2018 was touted to unbolt the horse of growth from AT&T's stable.
Alas! That was not to be.
The acquisitions left AT&T under a mountain of debt. AT&T hiked prices to service the debt. Millions of subscribers voted with their feet and exited.
The troubles didn’t stop there. Its core telecom business suffered from dissipated focus. All in all, the hotchpotch got too much to handle for the telecom giant.
AT&T sold a minority stake in DirecTV to private equity firm TPG in order to cut its debt. The deal valued the business at $16.5B in March, a quarter of the price of the original acquisition of $67B in 2015. At the end of Q1 2021, AT&T's total debt stood at $180.2B.
If the deal works out, this will be the second instance this month of a telecom giant hiving off its media assets. Earlier this month, Verizon agreed to sell its media assets to Apollo Global for $5B, less than its original investment of $9B.
A New Discovery?
Discovery's current market value, inclusive of debt, stands at $30B. The Discovery+ streaming service launched in January this year has 15M subscribers. The combined entity, including the assets of Warner Media, can have a viewership/subscriber base of over 150M. This includes Discovery Channel's reach to 88M households across the US and over 64M subscribers of HBO and HBO Max. Compare that to Netflix, which has over 200M subscribers, and Disney+, whose subscriber base swelled to over 100M after the acquisition of 21st Century Fox's entertainment assets in 2019.
Discovery isn't new to mergers and acquisitions. It completed an acquisition of HGTV owner Scripps Network Interactive Inc. in 2018 for $11.9B in order to consolidate its user base amidst a fast-changing television landscape.
As more subscribers continue to abandon Pay-TV services and adopt streaming, we observe this space with bated breath to see what happens to channels like CNN, TNT, and TBS who may also come under the Discovery stable post the proposed deal.
If the deal does work out, the global streaming market is set to discover another player in an intensively competitive landscape. Investors will wait to see if this proposed deal turns out to be a win-win for Discovery or it will remain a far cry as compared to its illustrious peers!
DISCA ended the day at $35.65, up 1.2%. T ended the day at $32.24, up 0.1%.
Company Snapshot 📈
DISCA $35.65 +0.42 (1.19%)
Analyst Ratings (25 Analysts) BUY 28% HOLD 68% SELL 4%
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