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AT&T Will Owe Discovery Big Bucks if They Back Out of Merger Deal

Derek Walborn

Some interesting details pertaining to this week’s bombshell merger of AT&T’s WarnerMedia and Discovery are coming to light.

According to a Plan of Merger that was filed on Thursday, if Discovery decides to back out of the deal, it will owe AT&T a breakup fee of $720 million.

No small potatoes, but the number pales in comparison to AT&T’s repercussions if were to do the same thing. If AT&T decides to back out of the deal to sell off WarnerMedia, it will have to pay Discovery a staggering $1.77 billion breakup fee.

Breakup fees are to be expected when it comes to media mergers. In its 2019 acquision of Fox, Disney would have had to pay $2.5 billion if regulators threw a monkey wrench in the works. AT&T would have previously also been accountable for a fee of $500 million if it backed out of its 2016 deal with Time Warner.

Discovery’s streaming platform, discovery+, has had a successful launch and appears, by all means, healthy. Premiering January 4 of this year, the company stated that the service surpassed 15 million new subscribers by the end of the first quarter of 2021.

WarnerMedia’s HBO Max has also been chugging along just fine, adding more subscribers than any of its competitors in the first quarter of the year, surely helped in part by the service making the Warner Bros. 2021 film slate available on the platform at the same time as their theatrical releases.

Unless the authorities say otherwise, it looks as though the deal will move forward and we will be seeing a new colossus in the streaming wars, that will combine Warner’s DC Universe, CNN, and HBO with Discovery’s unscripted programming. Both companies also maintain a sizable back catalogue of legacy material to draw from.

Detailed inquiry will tell if regulators determine that the combined brands of the two companies goes too far, but it looks as though the deal has already created some bad blood if WarnerMedia CEO Jason Kilar is to be considered.

The deal allegedly left him “in the dark,” and details of the merger were not made known to him until recent days. He is reportedly considering his exit strategy from the company.

Kilar was not the only high-profile personality to be both blindsided and shocked by the news that the legendary WarnerMedia seemed to transform overnight.

AMC CEO Adam Aron exploded. “Clearly, Warner Media intends to sacrifice a considerable portion of the profitability of its movie studio division, and that of its production partners and filmmakers, to subsidize its HBO Max start up,” Aron said. “As for AMC, we will do all in our power to ensure that Warner does not do so at our expense. We will aggressively pursue economic terms that preserve our business. We have already commenced an immediate and urgent dialogue with the leadership of Warner on this subject.”

Director Christopher Nolan also hit the ceiling. “Some of our industry’s biggest filmmakers and most important movie stars went to bed the night before thinking they were working for the greatest movie studio and woke up to find out they were working for the worst streaming service,” Nolan said. “Warner Bros. had an incredible machine for getting a filmmaker’s work out everywhere, both in theaters and in the home, and they are dismantling it as we speak. They don’t even understand what they’re losing. Their decision makes no economic sense, and even the most casual Wall Street investor can see the difference between disruption and dysfunction.”

The shockwaves from the deal have barely even begun to be felt, as we now see Amazon looking to acquire MGM for around $9 billion in another case of a legacy movie studio going to the highest bidder, in a quest for survival and relevance. Time will tell if the process pays off in the long run.

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