AT&T to spin off WarnerMedia

AT&T on Tuesday said it would spin off WarnerMedia in a $43 billion deal that would combine the media asset with Discovery, rather than split it off.

How it works: A spin-off will give AT&T shareholders a proportionate number of shares in the new WarnerMedia/Discovery company, rather than giving shareholders the option to trade their AT&T shares for discounted stock in the new venture.

• The 0.24 pro rata spinoff ratio means if you have 100 AT&T shares, you get 24 WarnerMedia/Discovery ones too.

Why it matters: Executives believe a spin-off will drive more value for shareholders and will allow them to avoid market volatility in the short-term.

• AT&T's stock steadily fell late last year in part because investors did not have clarity on whether the company would pursue a spin or a split. The stock is above its mid-December trough.
• According to a source familiar with the matter, a few key factors weighed on the final decision, among them the fact that AT&T shares have a huge retail component (roughly 50 percent) and clearly investors were positioning for a spin over a split ahead of the announcement.

What to watch: The company also said it would cut the dividend payout to investors by nearly half from $2.08 per share to $1.11 per share, a move it flagged last year.

What's next: The deal is expecting to close in the second quarter, pending U.S. regulatory approval.