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AT&T sets WarnerMedia spinoff plan and lowers dividends




AT&T Inc.

T -4.27%

said it would roughly halve the dividend payout and sell the WarnerMedia division through a spin-off that will give shareholders 0.24 shares for every AT&T share they own, a move that will complete the withdrawal from the entertainment industry.

Spinoffen is part of AT & T’s planned agreement to combine WarnerMedia with Discovery Inc.,

DISCB -1.90%

a merger that is expected to be completed in the second quarter. AT&T plans to use the transaction to refocus its remaining assets on its core telecom business.

After the spinoff, AT&T said it expects to pay an annual dividend per share of around $ 1[ads1].11, down from the latest level of $ 2.08. The new payment will cost the company just under $ 8 billion a year, down from the approximately $ 15 billion it paid out in 2021.

AT&T is one of the most widely used US stocks, and the company has historically offered one of the largest regular dividend payments on the market. Based on Monday’s closing price, it had a dividend yield of 8.16%. By comparison, rival Verizon Communications Inc.

had a dividend yield of 4.81% based on Monday’s prices.

Shares of AT&T fell around 4% in trading on Tuesday afternoon to around 24 dollars. The stock has lost about a third of its value since AT&T agreed to buy Time Warner Inc. in October 2016, while the S&P 500 index has doubled in the same period.

AT&T said that the change is responsible for the distribution of media assets and supports the telecom company’s plans to increase investments in 5G wireless and fiber optic service. Reducing the size of dividends will also enable the business to reduce debt faster. The company has said it will remain one of the corporate America’s highest dividend payers after the spinoff.

Managers had said they would cut dividends to reflect the company’s smaller size when the media business is divided into a separate company. The independent telecom company will receive around $ 43 billion in cash from the transaction, subject to certain adjustments.

HBO Max’s program “Hacks.” WarnerMedia’s HBO unit recently reported 73.8 million worldwide streaming subscribers.


Photo:

Anne Marie Fox / Associated Press

Until recently, AT&T had estimated a dividend payment between $ 8 billion and $ 9 billion, a figure based on the free cash flow it expects to generate in the coming years. Craig Moffett, an analyst for the media and telecom research company MoffettNathanson, called the dividend cut, which is slightly larger than expected, a sensible decision that will help the company quickly trim its debt obligations.

“It’s a sensible admission,” said Mr. Moffett. “It has been obvious to the market for several months that their original goals were not achievable.”

In May, AT&T agreed to close down its media business after struggling to convince investors that a telecom and media giant would be worth more than the sum of its parts. Following an antitrust lawsuit, the Dallas company completed the acquisition of the owner of HBO, CNN and Warner Bros. Studios in 2018.

Business executives have since said that separating the media unit and merging it with lesser rival Discovery will give the stand-alone entertainment company even more power to fight Netflix. Inc.,

waltdisney Co.

and large technology companies struggling to capture the streaming video market. WarnerMedia’s HBO unit reported 73.8 million worldwide streaming subscribers at the end of 2021.

AT&T has spent the past year reassuring shareholders that its remaining business will continue to grow while paying a smaller dividend that reflects its reduced size. Existing shareholders are queuing up for a 71% stake in the entertainment company, which will be called Warner Bros. Discovery.

The company said Tuesday that the new media business will trade under the stock symbol “WBD.” Managers have said that the spinoff will focus on growth and will not pay a regular dividend.

CEO John Stankey said last week that the company was discussing the best way to separate the two businesses. He said during a conference call with analysts that dividing the shareholder base through a swap offer would help reduce the number of AT&T shares circulating – and increase the share price – even if such a complex move would be unique to a company of its size.

On Tuesday, the company chose the simpler spin-off option – instead of a split – to make the transaction easier for individual investors to digest. It will still leave the telecom company with around 7.2 billion outstanding shares.

The company’s investor base has a particularly large proportion of retirees and other individuals with small holdings, a legacy from its roots as a blue-chip company that originated from the original nationwide Bell monopoly.

“We need to make sure it’s transparent and clean for everyone involved,” Mr Stankey said last week.

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com

Copyright © 2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8



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