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How the AT&T Spinoff Has Complicated Trading in Its Stock

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Photograph by Mike Mozart

Trading in


AT&T

stock on Monday may confuse some investors, because the base share price has been adjusted to reflect the closing on Friday of the merger of AT&T’s WarnerMedia business with Discovery.

 Holders of AT&T (ticker: T) received roughly a 0.242 share of

Warner Brothers Discovery (WBD), as the merged media company will be known, for each AT&T share in the spinoff.

The value of that Warner Brothers Discovery stock, which stood at roughly $5.90 per AT&T share based on Discovery’s closing price of $24.43 on Friday, was deducted from the closing price of AT&T’s stock on Friday to figure out the new base level for the AT&T shares.

AT&T shares were trading at $18.69 in pre-market trading. That’s up about 2% from the adjusted closing on Friday. AT&T ended Friday at $24.14 before the adjustment for the spinoff.

In pre-market trading, Warner Brothers Discovery was trading up slightly, at $24.60.

The combined value of the AT&T stock plus the fractional value of the Warner Brothers Discovery stock equaled the value of where AT&T was trading Friday before any moves Monday.

AT&T’s new dividend yield is about 5.9% based on its new annual payout of $1.11.

AT&T management has been eager for the deal to close to focus on the company’s core telecom operations.

One issue will be what AT&T shareholders do with the Warner Brothers Discovery stock. A large portion of AT&T holders—an estimated 45% to 50%–are retail investors.

Some may not want to hold a stock like Warner Brothers Discovery, which hasn’t paid a dividend when under the Discovery banner. It isn’t expected that the new company will pay a dividend. Some AT&T holders may sell Warner Brothers Discovery stock to buy more AT&T shares.

In its 2022 10-K report released in February, Discovery said: “We have not paid any cash dividends on our Series A common stock, Series B common stock or Series C common stock, and we have no present intention to do so.”

The three classes of Discovery stock were merged into a single class of Warner Brothers Discovery as part of the transaction.

In a press release Friday, AT&T noted that its holders received “1.7 billion shares of WBD, representing 71% of WBD shares on a fully diluted basis. Discovery’s existing shareholders own the remainder of the new company. In addition to their new shares of WBD common stock, AT&T shareholders continue to hold the same number of shares of AT&T common stock they held immediately prior to close.”

Write to Andrew Bary at andrew.bary@barrons.com

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