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AT&T stock fell on Tuesday after it announced plans to spin off WarnerMedia to shareholders as a precursor to its merger with Discovery (DISCA). The annual dividend of T stock will fall by about 46% to $1.11 per share as a result of the move, the telecom company said.
AT&T (T) stock fell 4.2% to close at 24.42 on the stock market today.
AT&T had left the door open to a more complex exchange offer, or split-off, from WarnerMedia. The new entity will become Warner Brothers Discovery and trade under the ticker symbol WBD.
AT&T shareholders will own 71% of the new media company, which will compete with Walt Disney (DIS), Netflix (NFLX) and others.
A split would have lowered outstanding shares, supporting the annual dividend paid to shareholders.
The companies plan to close the $43 billion media merger in the second quarter. T stock shareholders will receive, on a tax-free basis, an estimated 0.24 shares of the new WBD common stock for each share of AT&T common stock they own.
“In evaluating the form of distribution, we were guided by one objective — executing the transaction in the most seamless manner possible to support long-term value generation,” AT&T Chief Executive John Stankey said in a written release.
He added: “Rather than try to account for market volatility in the near-term and decide where to apportion value in the process of doing an exchange of shares, the spin-off distribution will let the market do what markets do best. We are confident both equities will soon be valued on the solid fundamentals and attractive prospects they represent.”
AT&T’s board of directors approved a post-close annual dividend of $1.11 per AT&T share, to account for the distribution of WarnerMedia to AT&T shareholders. AT&T currently pays a $2.08 annual dividend.
Meanwhile, all classes of shares of Discovery capital stock would convert into common shares of WBD with one vote per share. Cable TV industry pioneer John Malone is the biggest shareholder in Discovery.
After the Discovery deal closes, AT&T said 40% of its projected free cash flow will go to the annual dividend. AT&T also is investing in a 5G wireless network. And, it’s expanding its network of fiber-optic broadband services to homes and businesses.
As of Monday’s market close, T stock was up 3.6% in 2022 amid volatility in the tech-heavy Nasdaq.
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