AT&T's WarnerMedia is merging with Discovery

It would form a new content giant better able to compete with Netflix and Disney.

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AT&T has announced that it's spinning off its WarnerMedia division and merging it with Discovery in a $43 billion deal, following rumors from yesterday. The new company will combine assets including Warner's film division, HBO Max and the Discovery+ streaming service, putting into a better position to compete with Netflix, Disney+ and other rivals.

Under the terms of the agreement, AT&T will receive $43 billion in cash, debt and debt retention. It will own 71 percent of the new company (separate from AT&T), with Discovery holding 29 percent. The combined business will be headed by Discovery CEO David Zaslav, with executives from both companies in "key leadership roles."

“This agreement unites two entertainment leaders with complementary content strengths and positions the new company to be one of the leading global direct-to-consumer streaming platforms,” John Stankey, CEO of AT&T, said in a statement.

AT&T purchased WarnerMedia as part of its $109 billion Time Warner acquisition in 2018. At the time, the telecom said that the deal was a "perfect match" that would mate top-tier content with AT&T's far-flung distribution network. However, AT&T had troubling executing that plan in the face of stiff competition from Netflix, Disney+ and a host of other services that came along later. It also had a mountain of debt brought on in part by the acquisition.

Discovery apparently won out on the deal over NBCUniversal, according to THR. The combined company will have $3 billion in "cost synergies" and could earn up to $52 billion in revenue by 2023. With the new combined company separate from its telecom operations, AT&T will now focus on investing in "5G and fiber to meet substantial, long-term demand for connectivity," Stankey said.