By Dhirendra Tripathi
Investing.com – AT&T stock (NYSE:T) traded 4% lower in premarket Tuesday after the telecoms giant nearly halved its dividend payout to $1.11 per share from $2.08.
According to the company, the dividend cut reflects the distribution of WarnerMedia to AT&T shareholders.
AT&T’s board today signed off on separating WarnerMedia from itself and merging it and the rest of the media business with Discovery (NASDAQ:DISCA).
The deal will generate AT&T $43 billion in cash and other considerations, while its shareholders will receive around 71% of the new company, Warner Bros Discovery, in stock. They will get 0.24 shares of WBD for each AT&T share they own.
Discovery shareholders will own about 29% in WBD.
AT&T plans to use part of the proceeds to reduce its debt which stood in excess of $156 billion at the end of December. AT&T expects net debt will fall to 2.5 times adjusted EBITDA ratio of 2.5x by end-2023, from a ratio of 3.2x now.
WBD will be competing with the likes of Netflix (NASDAQ:NFLX) and Disney+ at a time when subscriber base is slowing, and content costs surging. WarnerMedia's HBO Max grew faster in the U.S. in the fourth quarter, ending the year with 74 million subscribers.