AT&T’s (T) board of directors has approved the spin-off of the company’s stake in WarnerMedia as part of the previously announced transaction with Discovery Inc. (DISCA). The transaction is expected to close in the second quarter. T stock fell 4.24% to close at $24.42 on Tuesday.
AT&T is a holding company that offers telecommunication, media, and technology services. It operates through the Communications, WarnerMedia, Latin America, and Xandr segments.
WarnerMedia Spin-Off
A spin-off of WarnerMedia offers AT&T an opportunity to deleverage its balance sheet and capitalize on the longer-term demand for connectivity. The company is to receive $43 billion made up of cash and other considerations.
AT&T’s shareholders are entitled to 71% equity in the new entity, Warner Bros. Discovery (WBD), on a fully diluted basis. Discovery shareholders will own the remaining 29% stake. AT&T shareholders are to receive 0.24 shares of WBD stock for each AT&T share held.
The total number of WBD shares that AT&T shareholders will receive will be determined closer to the closing date. Once the transaction closes, WBD will be listed on the NASDAQ Global Select Market.
The board has also approved a $1.11 dividend per AT&T share held, to be paid once the deal closes. The dividend will account for the distribution of WarnerMedia to AT&T shareholders. It also reflects about 40% of projected free cash flow. Its dividend yield currently stands at 8.23%.
Analysts’ Take
Barclays analyst Kannan Venkateshwar reiterated a Buy rating on AT&T stock and cut the price target to $28 from $30, implying 14.66% upside potential to current levels. According to the analyst, management’s comments on the WarnerMedia-Discovery deal structure have investor sentiment about the stock, with the 2022 outlook not helping.
Consensus among analysts is a Moderate Buy based on 7 Buys, 6 Holds, and 1 Sell. The average AT&T stock price target of $29.14 implies 19.33% upside potential to current levels.
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