AT&T Falls as Investors Digest Deal, Smaller Dividend Payout


AT&T Inc. fell the most in more than a year as investors digested plans for a smaller dividend payout from the phone giant following the planned merger of its WarnerMedia division with Discovery Inc.

Shares of AT&T fell as much as 7.9% Tuesday in New York, the steepest intraday decline since March 2020. The stock had gained 9.1% so far this year through Monday’s close. Discovery shares fell less than 1% Tuesday to $33.80.

Without the cash flow from WarnerMedia, AT&T said Monday that it will lower its dividend payout ratio to 43% of cash flow. That translates into to about $9 billion annually, down from $15 billion before, according to Colby Synesael, an analyst with Cowen & Co. As part of the deal, AT&T shareholders will own 71% of the combined media company while Discovery investors will get 29%. The parties value the new entity at $130 billion, including debt.

See more: The biggest recent media mergers

“I thought market was OK with that, but apparently not,” Synesael said. “Seems like it took a day for people to do the math.”

Cable pioneer John Malone, who has long controlled Discovery, issued a statement Tuesday reiterating that he backs the deal. “I am delighted to fully support this transaction, without asking for or receiving a premium for my high-vote shares,” Malone said. “I believe we are creating real value for shareholders and a legacy investment for my grandkids.”

The idea to create a new media giant, which is expected to have a name in the coming days, started with a text from Discovery Chief Executive Officer David Zaslav to his AT&T counterpart, John Stankey.

Their discussions coalesced into a merger of media properties combining AT&T’s HBO, Warner Bros. and TNT with a roster of Discovery channels, including the Food Network, and reality-TV shows like “Deadliest Catch” and “Naked and Afraid.”

“This is a major reset of the chessboard,” said Todd Lowenstein, chief equity strategist with the Private Bank at Union Bank. “Markets seem unwilling to render a favorable verdict at this point.”

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