AT&T sets WarnerMedia spinoff plan and lowers its dividend

Shareholders will get 0.24 shares in new media company and reduced annual dividend of $1.11 a share

AT&T Inc. said it would roughly halve its dividend payout and divest itself of its WarnerMedia division through a spinoff that would give shareholders 0.24 share for each AT&T share they own, a move that would complete its retreat from the entertainment business.

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T AT&T INC.
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$50.99
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The spinoff is part of AT&T’s planned deal to combine WarnerMedia with Discovery Inc., DISCB -1.91% a merger that is expected to close in the second quarter. AT&T plans to use the transaction to refocus its remaining assets on its core telecom operations.

After the spinoff, AT&T said it expects to pay an annual per-share dividend of about $1.11, down from its most recent $2.08 level. The new payout would cost the company just under $8 billion a year, down from the roughly $15 billion it paid out in 2021.

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AT&T is one of the most widely held U.S. stocks, and the company has historically offered one of the largest regular dividend payouts on the market. Based on Tuesday’s closing price, it had an 8.52% dividend yield. By comparison, rival Verizon Communications Inc. had a dividend yield of 4.81% based on Tuesday’s prices.

Shares of AT&T fell 4.2% to $24.42 on Tuesday. The stock has lost about one-third of its value since AT&T agreed to buy Time Warner Inc. in October 2016, while the S&P 500 index has doubled during the same period.

AT&T Inc. said it would roughly halve its dividend payout and divest itself of its WarnerMedia division through a spinoff that would give shareholders 0.24 share for each AT&T share they own, a move that would complete its retreat from the en (FOXBusiness)

AT&T said the change accounts for the media-asset distribution and supports the telecom company’s plans to boost investment in 5G wireless and fiber-optic service. Reducing the size of the dividend would also allow the business to more quickly whittle down debt. The company has said it would remain one of corporate America’s highest dividend-yield payers after the spinoff.

Executives had said they would cut the dividend to reflect the company’s smaller size once the media business is carved out into a separate company. The stand-alone telecom company stands to get about $43 billion in cash from the transaction, subject to certain adjustments.

AT&T had until recently projected a dividend payout between $8 billion and $9 billion, a figure based on the free cash flow it expected to generate in the coming years. Craig Moffett, an analyst for media and telecom research company MoffettNathanson, called the slightly larger-than-projected dividend cut a prudent decision that will help the company quickly trim its debt obligations.

"It’s a sensible admission," Moffett said. "It’s been obvious to the market for months that their original target wasn’t achievable."

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In May AT&T agreed to shed its media business after struggling to convince investors that a telecom-and-media giant would be worth more than the sum of its parts. After an antitrust fight, the Dallas company completed its purchase of the owner of HBO, CNN and the Warner Bros. studios in 2018.

Company leaders have since said that hiving off the media unit and merging it with smaller rival Discovery will give the stand-alone entertainment company even more heft to battle Netflix Inc., Walt Disney Co. and big tech companies racing to capture the streaming video market. WarnerMedia’s HBO unit reported 73.8 million world-wide streaming subscribers at the end of 2021.

AT&T has spent the past year reassuring shareholders that the remaining business will keep growing while paying a smaller dividend that reflects its diminished size. Existing shareholders are in line to get a roughly 71% stake in the entertainment company, which will be called Warner Bros. Discovery.

The company said Tuesday that the new media business will trade under the stock ticker "WBD." Executives have said that the spinoff will focus on growth and won’t pay a regular dividend.

Chief Executive John Stankey last week said that the company was debating the best way to separate the two businesses. He said during a conference call with analysts that splitting the shareholder base through an exchange offer would help lower the number of AT&T shares circulating—boosting its stock price—though such a complex move would be unprecedented for a company of its size.

The company on Tuesday picked the simpler spinoff option—instead of a split—to make the transaction easier for individual investors to digest. It would still leave the telecom company with about 7.2 billion shares outstanding.

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The company’s investor base has an especially large share of retirees and other individuals with small holdings, a legacy of its roots as a blue-chip company descended from the original nationwide Bell monopoly.

"We need to make sure it’s transparent and clean for everybody involved in this," Stankey said last week.