T Stock Falls On Slashed Dividend, Spin Off Of WarnerMedia Stake

AT&T fell on Tuesday after the company said it will spin off its stake in WarnerMedia to shareholders as part of the Discovery (DISCA) merger. The annual dividend of T stock will fall by about 46% to $1.11 per share, the telecom company said.

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In trading before the market open on the stock market today, AT&T (T) stock plunged 5.8% to near 24.

AT&T had left the door open to a more complex exchange offer, or split-off, of its 71% stake in the combined media company. The new entity will become Warner Brothers Discovery and trade under the ticker symbol WBD.

A split would have lowered outstanding shares, supporting the annual dividend paid to shareholders.

T Stock: Dividend Falls Post Discovery Closing

The companies plan to close the WarnerMedia merger with Discovery in the second quarter. T stock shareholders will receive, on a tax-free basis, an estimated 0.24 shares of the new WBD common stock for each share of AT&T common stock they own.

“In evaluating the form of distribution, we were guided by one objective — executing the transaction in the most seamless manner possible to support long-term value generation,” AT&T Chief Executive John Stankey said in a written release.

He added: “Rather than try to account for market volatility in the near-term and decide where to apportion value in the process of doing an exchange of shares, the spin-off distribution will let the market do what markets do best. We are confident both equities will soon be valued on the solid fundamentals and attractive prospects they represent.”

AT&T’s board of directors approved a post-close annual dividend of $1.11 per AT&T share, to account for the distribution of WarnerMedia to AT&T shareholders. AT&T currently pays a $2.08 annual dividend.

Investments In 5G Wireless, Broadband

Meanwhile, all classes of shares of Discovery capital stock would convert into common shares of WBD with one vote per share. Cable TV industry pioneer John Malone is the biggest shareholder in Discovery.

After the Discovery deal closes, AT&T said 40% of its projected free cash flow will go to the annual dividend. AT&T also is investing in a 5G wireless network. And, it’s expanding its network of fiber-optic broadband services to homes and businesses.

As of Monday’s market close, T stock was up 3.6% in 2022 amid volatility in the tech-heavy Nasdaq.

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