AT&T CEO John Stankey and CFO Pascal Desroches held a 45-minute WebX town hall for WarnerMedia employees this morning, offering additional information about the entertainment unit’s upcoming merger with Discovery.
The $43 billion deal surprised the industry, and while it’s expected to take at least a year to close, it has prompted a flurry of questions about the future for the companies and the media business. Investors reacted poorly to the news on the first full day of trading since the announcement, sending AT&T shares down 6% on the day.
The discussion with the two executives was moderated by Christy Haubegger, WarnerMedia communications chief and top inclusion officer. From those who attended, we hear that for the most part, it was in some ways a recap from yesterday’s hour-long press briefing with Discovery CEO David Zaslav and Stankey about the deal. Stankey reviewed the financials of the combination of the companies into a still-unnamed entity, which is projected to have $52 billion in revenue in 2023.
One item of note that surfaced in the town hall was the promised $3 billion in synergies expected from the deal — a higher tally than that given after AT&T’s $81 billion purchase of Time Warner. Attendees said Stankey didn’t have a crisp response to what the synergies might mean in terms of layoffs, and largely talked around the topic.
Synergies take different forms, but administrative functions like HR and finance are often targeted for cuts. In the case of AOL-Time Warner, given the broader streaming-focused revamp, roles in distribution, marketing and sales were also affected. When AT&T acquired WarnerMedia in 2018, executives projected a $2.5 billion annual synergy number. Over the next two years, about 2,000 jobs were cut and a number of senior execs departed.
As a few observed, the AT&T duo were also asked about the merger appearing to be a situation of “David swallowing Goliath,” with WarnerMedia being Goliath. More to the point, the query was about how Zaslav was named the boss of the merger in a situation where AT&T shareholders own 71% of the combined entity and Discovery’s just 29%. Stankey’s reportedly layered response explained how merger talks drill down to the finest points, from the number of board members, to the stock situation of the companies. Essentially, when it came down to naming the CEO of the new combined company, that fell in favor of the Discovery side.
Zaslav’s designation as the lead exec has cast doubt on the future of WarnerMedia CEO Jason Kilar. The New York Times reported yesterday that Kilar has hired a legal team to negotiate his exit. On yesterday’s press call, when asked about Kilar’s status, Stankey said, “David’s got a lot of decisions to make on personnel” ahead of the closing.
AT&T shares dropped 6% today — a big downward move for a stock that is typically the opposite of volatile — as Wall Street processes the second money-losing spinoff by the telecom giant in 2021. After unloading 30% of DirecTV in a deal worth a fraction of the $67 billion (including debt) that the company paid for the satellite TV operator in 2015, the Discovery offloading represents another significant haircut.
Also weighing heavily on the stock was the decision by the company to cut its dividend, which is relied on by its larger-than-average pool of individual investors and seen by investors as sacrosanct. CNBC host Jim Cramer said long-term investors “feel very betrayed” by the move. He blasted the Time Warner deal as “one of the dumbest mergers in recent history.” Stankey, he said, compounded the error by delivering the dividend news without much evident sensitivity. “I mean, why not just say, ‘We screwed up’? Why not just say, ‘We paid too much?'” Cramer said. “Why not just say, ‘We said that the dividend was safe, and we were wrong’?”
After waging a fierce legal battle against Department of Justice antitrust regulators in 2018 after an 11th-hour lawsuit was filed to try to block the Time Warner deal, AT&T secured a federal judge’s approval and closed the merger in June 2018. (An appeals process would cast a shadow into the following winter before the DOJ was thwarted by an appellate court and finally dropped its case.)
AT&T made wave after wave of moves to try to make the marriage work. It articulated a grand vision of distribution might across 170 million consumer touchpoints in wireless and pay-TV combined with top-shelf content from Warner Bros, HBO and Turner. Saddled with debt from the $81 billion deal, it sold off a number of assets, from its 10% stake in Hulu to its New York headquarters building to anime brand Crunchyroll. In order to unlock value and propel nascent streaming service HBO Max, thousands of jobs were shed and walls were torn down between previously autonomous divisions. Dozens of seasoned executives with collective centuries of experience among them departed, especially at HBO and Turner, whose bosses, Richard Plepler and David Levy were among the most notable departures.
HBO Max, in the end, proved fairly resilient a year after its inauspicious launch. Combined with linear HBO, the streaming service had 44.2 million subscribers as of the end of March. Most of the growth was due to a dramatic call to put the entire Warner Bros film slate onto HBO Max at the same time it reached theaters. WarnerMedia’s executive suite has undergone near-constant change over the past three years. Kilar, who was named CEO last spring, cut loose Bob Greenblatt and Kevin Reilly in the summer of 2020 after the early struggles at HBO Max, undoing the exec structure that Stankey had put in place in 2019.