The WarnerMedia Discovery deal has been structured to make future gross sales simpler

John Malone from Liberty Media

Michael Kovac | Getty Images

WarnerMedia’s longtime employees have gone through so many spin-offs and mergers that the announcement of the imminent split from AT&T and the combination with Discovery on Monday spelled gallows humor.

“You just have to laugh,” said an experienced employee.

Given this context, it is not surprising that WarnerDiscovery – the leading candidate for a name according to one person familiar with the matter – is structuring itself for a future sale.

The key indicator that future CEO David Zaslav is already considering a future sale – provided the combination receives regulatory approval – is John Malone’s decision to give up his Discovery super-voting stock in favor of the combination with WarnerMedia.

Based on the last letter of attorney filed on April 30, Malone owned 6.2 million Discovery Class B shares, giving him a total of 26.5% voting control – most from any individual owner. He held a total of 19.5 million shares, which corresponds to an economic participation of 4%. His voting rights control was much greater due to the super-voting stock.

Malone agreed to sell those shares for common stock because he wanted to give WarnerDiscovery a combined flexibility to sell itself in the future – most likely to a deep-pocket tech company like Amazon or Apple, or some other media giant like Disney Person who is familiar with the matter.

A deal would be huge – but not unprecedented. In fact, previous iterations of WarnerMedia have already sold twice for more than $ 100 billion in debt. AT & T’s purchase of Time Warner in 2016 exceeded $ 100 billion, and AOL’s acquisition of Time Warner in 2000 cost $ 160 billion.

WarnerMedia M & A.

Why has the company faced so many mergers compared to its media competitors? Accuse the lack of double class stocks, which give founders or other insiders excessive voting control over the number of stocks they actually own.

ViacomCBS is controlled by Shari Redstone. Comcast is controlled by the Roberts family. AMC Networks is controlled by the Dolan family. Fox is controlled by the Murdochs.

But Time Warner always had a share class. This paved the way for Fox’s hostile attempt to acquire Time Warner in 2014 and later eased then-CEO Jeff Bewkes’ decision to sell to AT&T.

AT&T also only has one share class. This helped hedge fund Elliott Management take a stake in 2019 and become involved in divestments, which hastened the dismissal of CEO Randall Stephenson and the final hiring of John Stankey. It was Stankey who ultimately decided to save WarnerMedia in the interests of “shareholder accretion”.

Simplifying it to a share class will also help WarnerMedia’s attempts to buy future media companies with shares if the company wants to grow through mergers rather than sell. It is possible that after years of leading a relatively small player like Discovery, Zaslav would like to spend many years at a huge media company.

On the other hand, if Zaslav sells, there will be $ 115 million waiting for him as a change of control provision in his contract when he leaves as CEO.

And WarnerMedia employees can enjoy what becomes a regular rite of passage – another corporate integration and reorganization.

WATCH: Discovery CEO: We can reach 400 million direct-to-consumer homes

Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.

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