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AT&T Will Owe $1.8 Billion Breakup Fee if It Drops Discovery Deal

John Stankey AT&T CEO
Courtesy of AT&T

AT&T will pay Discovery a $1.77 billion breakup fee if it backs out of its deal to sell off its WarnerMedia segment, according to a Plan of Merger filed on Thursday.

If Discovery backs out of the deal, it will owe AT&T a breakup fee of $720 million. The terms were disclosed in a filing on Thursday. If regulators kill the deal, no party will have to pay a breakup fee. The deal is expected to close by mid-2022.

The plan of merger also states that Discovery will set the size of its board of directors at 13 members, consisting of five directors designated by it board, as well as Discovery CEO David Zaslav. In addition, seven directors will be designated by AT&T. The telecom will also select the chairperson of the Discovery board.

Breakup fees are a standard component of media mergers. For instance, Disney agreed to pay $2.5 billion if its 2019 Fox acquisition was blocked by regulators. In 2016, Time Warner agreed to pay a $1.6 billion breakup fee to AT&T if it backed out of that merger. AT&T would have paid $500 million to Time Warner.

The pact with WarnerMedia stunned Hollywood when it was revealed last weekend. It has the potential to create a new media powerhouse, combining the companies behind Warner Bros., HBO, TNT, HGTV, and Animal Planet.

As part of his new employment agreement, Zaslav’s base salary will remain $3 million per-year and he will have a target bonus of $22 million. If the deal is consummated then Zaslav will receive his full bonus for the calendar year following the year when the transaction is completed. As was previously reported, Zaslav received grants of options valued at $190 million.