By Kenneth Li

(Reuters) -AT&T Inc said on Tuesday it will spin off WarnerMedia in a $43 billion transaction to merge its media properties with Discovery (NASDAQ:) Inc and also cut its dividend by nearly half.

AT&T (NYSE:) shareholders will own 71% of the new Warner Bros. Discovery will be able to receive 0.24 shares from Warner Bros. Discovery for each AT&T share they own. AT&T will have 7.2 billion diluted shares outstanding after the transaction closes.

A dividend will be paid by the U.S. telecoms company at $1.11 per share instead of $2.08 per shared. This is at the lower end of an $8 billion to $9 billion range AT&T had forecast earlier.

In premarket trading, AT&T shares were down 4%.

The deal to unwind AT&T’s $85 billion purchase of Time Warner was announced early last year, but some financial details were not disclosed until Tuesday.

“Rather than try to account for market volatility in the near-term and decide where to apportion value in the process of doing an exchange of shares, the spin-off distribution will let the market do what markets do best,” AT&T CEO John Stankey said in a prepared statement.

We are positive both equity investments will be appreciated due to the attractive prospects and solid foundations they provide.

AT&T anticipates spending about $20 billion in capex this year to invest more heavily into fiber to the home broadband internet services and expanding its 5G wireless footprint.

The transaction will help reduce AT&T’s heavy debt load. The net debt at $156.2 billion was the company’s fourth quarter total. This gave it an adjusted net debt-to-EBITDA ratio (about 3.22%)

AT&T said it expected the debt ratio to drop to 2.5% by the end of 2023 and that it would consider share buybacks if the ratio is reduced further.

Warner Bros Discovery will play catch-up to Netflix (NASDAQ) – even though WarnerMedia’s HBO Max, which was launched in the United States last quarter with 74m subscribers, grew more quickly in the fourth Quarter.

The combination is expected to be completed in the second quarter. This is just like Netflix showing signs of maturation.

Netflix https://www.reuters.com/business/media-telecom/netflix-misses-subscriber-addition-estimates-pandemic-pull-eases-competition-2022-01-20’s surprisingly weak guidance for the first quarter of the year spooked investors in the media sector, sparking a sector wide sell off.

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