John Stankey, CEO of AT&T, said an effort by Democratic leaders in Congress to characterize the proposed merger of WarnerMedia and Discovery as an anticompetitive threat to the media industry was “unfounded.”
“What is articulated in those letters is really unfounded,” said Stankey, speaking Monday at UBS’s Global TMT Conference, referring to a communication from several Democratic senators and representatives to the Justice Department urging scrutiny of the WarnerMedia-Discovery deal.
Stankey said the “foundation of their concerns” expressed in the letter is “not very strong” and said he isn’t worried about AT&T’s ability in “navigating through that.”
“Getting letters from Congress is not unusual,” Stankey added. “We are a large company… we are in a lot of businesses.” Overall, from a regulatory-review perspective, “There’s nothing unusual about this transaction,” Stankey asserted.
The letter to the DOJ sent by Democratic members of Congress said in part about the pending WarnerMedia-Discovery deal, “This transaction raises significant antitrust concerns. In particular, the merger threatens to enhance the market power of the combined firm and substantially lessen competition in the media and entertainment industry, harming both consumers and American workers. In light of these concerns, we respectfully urge the Department to conduct a thorough review of this transaction to ensure that it does not harm American consumers and workers by illegally harming competition.”
The letter was spearheaded by U.S. House member Joaquin Castro of Texas; Sen. Elizabeth Warren of Massachusetts; House member David Cicilline of Rhode Island, chair of the House Antitrust Subcommittee; and House member Pramila Jayapal of Washington, who is chair of the Congressional Progressive Caucus.
According to Stankey, AT&T remains on track to complete the WarnerMedia deal with Discovery in mid-2022. “I’ve seen nothing in this process that is out of pattern or out of skew,” he said at the UBS conference. “I feel good about the process, is the net of it.”
At this point, the telecommunications company has not decided whether it will divest WarnerMedia as a spin-off (in which AT&T shareholders would receive stock in the new WarnerMedia-Discovery) or as a split (in which shareholders would have the choice to take shares of AT&T or the new media company). “The AT&T board continues to discuss this,” Stankey said, saying the final decision will be made “closer to the close.”
AT&T is spinning off WarnerMedia to combine it with Discovery, a transaction expected to close in mid-2022 pending regulatory approvals. Under the planned WarnerMedia spin, the telco will receive $43 billion in cash to pay down debt.
On Monday, Stankey reiterated that AT&T expects its debt-to-EBITDA ratio to be 2.6:1 at the close of the WarnerMedia deal, and to be 2.5:1 by the end of 2023. After the WarnerMedia transaction closes, AT&T expects an aggregate annual dividend of $8 billion-$9 billion (which equates to a roughly 40% payout ratio assuming $20 billion in free cash flow the first full year after the close of the transaction).
Last month, Discovery chief David Zaslav said he will primarily be based in Los Angeles by the time the WarnerMedia deal is expected to close. So far, Zaslav has declined to reveal details of the new management structure of merged “Warner Bros. Discovery,” saying only “we have ideas” about what that will look like. (Whatever that looks like, WarnerMedia CEO Jason Kilar is expected to be out of a job.)
For Warner Bros. Discovery, streaming will be a primary focus. Zaslav, however, hasn’t specifically detailed how the companies’ go-to-market streaming strategy may change under one roof. As he has before, in the Paley interview he labeled Netflix and Disney “formidable” rivals but reiterated his claim that the combined Discovery-WarnerMedia will have a bigger content library than Netflix.
In announcing Q3 earnings, Discovery last week said it had 20 million paid direct-to-consumer streaming subscribers worldwide, including for Discovery Plus. AT&T, in its Q3 report, disclosed that HBO and HBO Max subscribers had 69.4 million combined global subs in the third quarter, up 1.9 million sequentially, as international growth offset a U.S. loss related to the discontinuation of HBO’s distribution on Amazon Prime Channels, and was on track to hit 70 million-73 million by year-end.