Key Points:

• The AT&T and Discovery merger has been a financial disaster, leading to major losses and a $9.1 billion write-off.
• Promised synergies haven’t materialized, and traditional media assets are losing value rapidly.
• The merger’s outlook is grim, with uncertain future prospects.
• Also: Investors are scooping up shares of these 2 Dividend Legends

Lee and Doug discuss the problematic merger of Warner Media and Discovery (NASDAQ: WBD), which was initiated by David Zaslav, the CEO of Discovery. They highlight the flawed logic behind the merger, especially since AT&T (NYSE: T), a telecom giant, had no business owning media assets in the first place. The merger was justified with the usual talk of “synergies,” but it has been a financial disaster, culminating in a recent $9.1 billion write-off on traditional media assets like television. They express skepticism about the long-term viability of these assets, particularly as traditional media continues to decline in value. They also mention the challenges faced by large conglomerates like AT&T when they try to expand into unrelated industries, often leading to poor outcomes.

Transcript:

So one of the most disastrous mergers of the last two or three years is the assets that were called Warner Media, which were owned by AT&T.

Now, that by itself makes no sense.

You’ve got a big telecom company and they decided to buy a bunch of media assets, which is stupid.

But anyway, so a guy named David Zaslav, who ran a medium-sized traditional media company called Discovery, somehow talked AT&T into merging the Warner assets with his assets.

And it may be that AT&T was just desperate to get rid of the stuff because they didn’t know what to do with it.

So they do the merger.

And the reason is always the same—synergies, synergy, synergy.

It’s like the Harvard Business School term.

And what does that mean?

Well, we’re better off to have a bigger company that has assets that are sort of similar.

And, oh, by the way, you can always cut costs.

So it’s always, we have almost the same, so we’re just going to cut costs.

Okay.

So this guy did this.

The thing has bled money since he did it.

And they just had a $9.1 billion write-off on their traditional assets, which are mostly television.

You can understand the write-off because traditional media like newspapers and television, the value of those is falling apart.

But this guy came up with an idea that was basically flawed, didn’t he?

Yeah.

I mean, you know, this always seems to happen.

It always seems to happen, especially when huge conglomerates like Telephone get out there and try to expand.

You know, they had to jettison DirecTV and all sorts of assets because their debt had risen so high.

But yet when they called this together, I mean, I was listening to Jessica Reif, whatever her last name is from B of A, yesterday, who is a good media analyst and has been good for years.

But she was going to rationalize staying behind it, saying, well, there’s value, there’s value.

Most of those assets, I mean, look at the broadcast television.

I mean, that’s a dying asset.

And I don’t know how this is going to work out when it’s all said and done.

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