AT&T, the largest US telecom operator, announced an agreement to merge its media giant Warner Media (formerly time Warner) with its rival Discovery on the morning of Monday, May 17. This means that there will be a giant with a valuation of hundreds of billions of dollars in the highly competitive streaming track.

Based on Warner Media's estimate of about $90 billion in enterprise value, the deal values the combined company at about $130 billion, including debt. Earlier, the media estimated that the deal would create a media giant that could be valued at as much as $150 billion.

Under the agreement, AT&T will spin off Warner Media, which it acquired for more than $85 billion in 2018, receiving a total of $43 billion in cash, debt and a combination of Warner Media's retention of some debt. In the new company formed by Warner Media and Discovery, AT&T shareholders will have 71 per cent of the shares and the remaining 29 per cent will be held by Discovery shareholders.

The new company will be led by Discovery's current president and CEO David Zaslav. The current executives of AT&T and Discovery will remain in the new company. At present, the board of directors of both AT&T and Discovery have approved the merger, which must also be approved by Discovery shareholders. If approved, the deal is expected to close in 2022, in the middle of next year.

The new company will own Warner Media's channels CNN, HBO, TNT, TBS and Discovery's Animal Planet and Food Network channels, as well as Warner Brothers' intellectual property rights to film and television works.

Earlier, media quoted people familiar with the matter as saying that the $43 billion AT&T received from the deal would help the company give priority to the development of its wireless business and repay its huge debt.

After the agreement was announced, AT&T 's CEO John Stankey said it was an opportunity for AT&T shareholders to unlock value and become one of the most capitalized broadband companies in the world, focusing on investing in 5G and fiber optics to meet large and long-term networking needs.

Some industry analysts point out that AT&T is heavily indebted and its balance sheet does not allow the company to invest heavily in both its streaming HBO Max and its 5G wireless network, which is the company's core business and now needs to increase investment in building a 5G network. When it acquired time Warner, AT&T expected the media company to be a pillar of seamless connectivity between content and broadband, but that vision failed to materialize.

After the announcement of the merger agreement, Discovery A, B, C common shares all rose in a straight line before the resumption of trading, of which Class A shares rose nearly 20% at one time and rose more than 2% before AT & T. , Discovery A stocks rose more than 11 per cent at the start of trading, but turned down in early trading and closed down about 5 per cent. AT&T, which had risen 5 per cent in early trading, turned lower at midday to close 2.7 per cent lower.

After the giants scramble for streaming media cake and join hands with Discovery, the competition situation of Warner is still grim.

Analysts say the merger of Warner Media and Discovery will further strengthen the media business that has been hit by streaming giants and cable TV has been unsubscribed and suffered heavy losses.

The deal could mark the telecoms giant's start to make big bets on its media business at a time of growing pressure on its traditional entertainment business.

In the past few years, the landscape of the media industry has changed dramatically, the operation of traditional television in the United States has been difficult, and the epidemic has greatly boosted the growth of streaming media users. Last year, the number of global streaming subscribers exceeded 1.1 billion. Over the past year and a half, many giants, including Disney, Apple, Warner Media and Comcast, have rushed to join the field.

Although AT&T is mainly engaged in telecommunications business, it has already started the expansion of media content and distribution channels. Nearly three years ago, through the acquisition of Warner Media, it acquired a range of well-known media brands, including Warner Bros. and TV studios, HBO, and CNN. In response to the streaming war, Warner Media officially launched streaming HBO Max in May last year, providing more than 10, 000 hours of high-quality content from HBO and Warner Brothers.

John Stankey, president of AT&T, said the merger agreement unites two entertainment leaders with complementary content advantages and positions the new company as one of the world's leading direct-to-consumer streaming platforms. It will enable HBO Max to distribute globally, as well as Discovery around the world, improve operational efficiency, and reinvest to produce more exciting content. To provide consumers around the world with what they want to see.

Stankey also said that their goal is not to become Netflix, but to do something different., HBO Max will have unique ideas, occupy a unique position among users, and they will have their own way of playing.

However, the media pointed out that the merged new media company is still smaller in terms of streaming services than its competitors in the industry. Together, HBO Max and HBO have about 63.9 million global subscribers, while Discovery+ has about 15 million subscribers. Netflix alone has more than 200 million global subscribers, and Disney +, a Disney streaming platform launched in November 2019, has 100 million users.

Discovery's CEO David Zaslav said on an investor conference call that he believed the new company would have 200m, 300m and 400m subscribers in the future, but did not say when they would be reached.

It is worth noting that, John Stankey is likely to cancel the two biggest deals completed by its predecessor, Randall Stephenson, during his 10-month tenure. Earlier this year, the company reached an agreement with private equity firm TPG to sell a 30 per cent stake in its DirecTV business for $1.8 billion, following AT&T 's $49 billion acquisition of DirecTV in 2015.

Stankey, Stephenson's successor to AT&T CEO, who stepped down last summer, is a veteran of the phone business and a major proponent of the huge M & A deal, and later led the integration of the two businesses.