Cable Billionaire Malone May Take $280 Million Hit on AT&T-Discovery Deal

(Bloomberg) -- John Malone, the billionaire investor and media executive, may see the value of his Discovery Inc. shares cut by almost $280 million as a result of its merger with AT&T Inc.’s media businesses -- a deal he vigorously supports.

Malone owns 6.19 million Discovery Class B shares, which currently trade at $78 each, making his holding worth about $483 million. But under the deal announced this week, those shares will convert on a one-for-one basis into the stock of the new company, the same ratio as Discovery’s Class A common shares, which trade at around $33 each.

“I am delighted to fully support this transaction, without asking for or receiving a premium for my high vote shares,” Malone said Tuesday in a statement. “I believe we are creating real value for shareholders and a legacy investment for my grandkids.”

Malone’s B stock carries supervoting rights -- 10 each per share. And they have traded at a modest premium to the other common shares. But they soared in March in the aftermath of the stock selloff by Archegos Capital Management and reached $128 at one point, giving the cable TV executive a paper windfall of $353 million. Tuesday’s statement suggests that premium will evaporate with the conversion, along with his extra voting rights.

By contrast, the Newhouse family is receiving 13.1 shares of the new common in exchange for each of its Series A-1 preferred shares. In addition, they will be allowed to nominate two directors to the board of the new company.

The Newhouse family’s company, Advance, said it had rights to approve the chief executive officer, annual budgets, major transactions and three directors. In exchange for permanently relinquishing those rights, they received additional shares, determined by an independent committee, the company said in a statement.

The deal, which will merge AT&T’s Warner Bros. studio, CNN and HBO businesses with Discovery, the parent of HGTV and Animal Planet, was announced on Monday. AT&T investors get 71% of a new publicly traded company, while shareholders of Discovery will own the balance. The deal is expected to close in the middle of next year.

In his statement, Malone cited the “industrial logic” of putting the businesses together. Discovery CEO David Zaslav, who will lead the combined operation, was asked why Malone isn’t receiving a premium for his shares during a conference call Monday.

“He’s a very generous person,” Zaslav said. “He’s been extraordinarily generous with me. And from the very beginning, he said, ‘I want this for the shareholders.’”

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