Why Shares Of AT&T Moved To Yearly Highs Today?

AT&T Video 17.05.21.

AT&T’s WarnerMedia And Discovery Will Combine To Create A Standalone Company

Shares of AT&T opened with a gap up and hit new yearly highs at $33.88 after the company announced that it would combine WarnerMedia’s assets with Discovery in a new company. Discovery President & CEO David Zaslav will lead the new company.

AT&T shareholders will own 71% of the new company, while Discovery shareholders will own 29% of the new company. The transaction has already been approved by the Boards of Directors of both companies.

In its press release, AT&T stated that the transaction will accelerate both companies’ plans in the streaming space. From the financial point of view, the new company is projected to generate revenue of about $53 billion and adjusted EBITDA of $14 billion in 2023.

What’s Next For AT&T?

AT&T tries to use the current popularity of the streaming segment among investors to get higher valuation for its WarnerMedia assets. In addition, AT&T is using the recent weakness of Discovery shares which lost more than 50% of their value since March when the company got hit by the problems of the hedge fund Archegos Capital.

The strategy of putting a company’s assets into a standalone firm in case such assets are believed to be undervalued is not new, and it often works. In this light, it’s not surprising to see that AT&T shares moved to yearly highs. The stock has recently pulled back towards the $33 level as investors took some profits, but the shares are still up by more than 2% during the current trading session.

Obviously, the new company will compete against Netflix and Disney, and it looks that AT&T wanted to create a bigger company to increase its chances in competition for the market share in the streaming segment. It remains to be seen whether the new company will be able to grow at a fast pace, but the deal will likely serve as an additional bullish catalyst for AT&T stock in the upcoming weeks.

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