Discovery shareholders shouldn’t celebrate just yet: DOJ will ‘very closely’ evaluate the media deal

AT&T (NYSE: T) said on Monday it will merge Warner Media with Discovery (NASDAQ: DISCA), resulting in one of the largest Hollywood studios that will compete with media giants, including Disney and Netflix.

Following the merger that will result in $43 billion (£30.50 billion) of aggregate for AT&T, its shareholders will retain a 71% ownership in the company, while the remaining 29% will go to Discovery shareholders.

Discovery’s David Zaslav to lead the new business

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The new business that is likely to be valued at $150 billion, including debt, will be separate from AT&T. The American multinational conglomerate holding company also confirmed that David Zaslav (current CEO of Discover) would lead the new business.

Out of a total of 13 seats on the board, 7 (including the chair) will be appointed by AT&T, while Discovery will nominate the remaining six. The news comes almost a month after the telecommunications company reported its financial results for the first quarter.

Discovery opened 10% up in the stock market on Monday but lost more than half of its intraday gain in the next hour. The American mass media company is now trading at $36.78 per share. In comparison, Discovery had started the year 2021 at a per-share price of $30.63.

Congressman Mike Gallagher’s comments

Commenting on whether or not the deal will receive regulatory approval, Wisconsin Congressman Mike Gallagher said in an interview with Fox Business:

“While it may be too soon to tell, I think they will try and scrutinise it. My sense of Biden’s DOJ is that the energy is in the highly regulatory, more government intervention side of the scale. We also see that in Biden’s tax plan, which would be a massive increase of corporate taxes and capital gains taxes, in order to fund a massive increase of the federal government’s power, particularly on the regulatory side of the scale. So, my hunch would be that they’d scrutinise this deal very closely.”

Gallagher further highlighted that both parties in the U.S. Congress had expressed a desire to make smart investments in broadband. Earlier this year, in January, AT&T said it will cut its workforce in Slovakia as COVID-19 continued to weigh on demand.

AT&T shares jumped close to 4% in premarket trading on Monday. Currently at $33.48 per share, the stock is now up a little under 15% year-to-date. At the time of writing, AT&T has a market capitalisation of $240 billion.