What happened in the WarnerMedia Discovery merger
The WarnerMedia Discovery merger was announced on May 17, 2021. AT&T agreed to spin off WarnerMedia and combine it with Discovery, Inc. in an all-stock deal that gave AT&T about $43 billion and its shareholders 71% of the new company.
The deal closed on April 8, 2022, creating Warner Bros. Discovery (WBD) under Discovery’s CEO, David Zaslav. On October 6, 2026, Paramount bought the whole company for about $31 a share in cash.
In between, WBD cut costs hard, paid down $19.5 billion of debt, wrote off $9.1 billion of goodwill and planned to split itself in two. The structure worked for AT&T. For WBD, the debt became the strategy.
How the Reverse Morris Trust worked
A Reverse Morris Trust lets a parent company separate a business without a corporate tax bill, as long as the parent’s shareholders end up owning most of the merged company. AT&T spun WarnerMedia off to its shareholders, and WarnerMedia merged with Discovery the same day.
At close, AT&T received $40.4 billion in cash plus WarnerMedia’s retention of certain debt. Each AT&T share received 0.241917 WBD shares.
Each side wanted something different from the WarnerMedia Discovery merger. For AT&T, it undid the 2018 purchase of Time Warner and freed cash for what CEO John Stankey called record investment in “5G and fiber.” For Discovery, it was scale: David Zaslav argued the assets were “better and more valuable together.”
Discovery’s shareholders owned only 29%, yet Discovery ran the company. Under the 2021 agreement, Zaslav became CEO and AT&T named 7 of the 13 directors.
Figure 1. The Reverse Morris Trust gave AT&T cash and a tax-efficient exit, and gave Discovery control of a much larger company. Source: AT&T and Discovery releases, May 17, 2021 and April 8, 2022.
| Deal term | Figure |
|---|---|
| Announced | May 17, 2021 |
| Closed | April 8, 2022 (about 11 months) |
| Structure | Reverse Morris Trust: spin-off of WarnerMedia, then all-stock merger with Discovery |
| Value to AT&T | About $43 billion: $40.4 billion in cash plus debt kept by WarnerMedia |
| Ownership at close | 71% AT&T shareholders, 29% Discovery shareholders |
| Exchange ratio | 0.241917 WBD shares per AT&T share |
| Leadership | David Zaslav (Discovery) as CEO; board of 13, with 7 named by AT&T |
| Synergy target | At least $3 billion a year, later raised to $4 billion |
| Starting leverage | 5.0x net leverage and $53.0 billion of gross debt at June 30, 2022 |
The promise behind the WarnerMedia Discovery merger
The 2021 plan projected about $52 billion of revenue and $14 billion of adjusted EBITDA for 2023. It promised at least $3 billion of annual cost synergies and a fall to about 3.0x leverage within 24 months.
The WarnerMedia Discovery merger did not hit those numbers. The reported results came in well short. In 2023, WBD booked $41.3 billion of revenue and $10.2 billion of adjusted EBITDA. Net leverage was 5.0x after the first quarter and still 3.8x at the end of 2024.
Figure 2. Revenue, earnings and leverage all fell short of the 2021 plan. Source: AT&T and Discovery release (May 17, 2021); WBD earnings releases
Integration: cost first, culture second
Discovery’s playbook was cost discipline, and the debt left little room for anything else. In August 2022, WBD shelved Batgirl, a film with a reported $90 million budget.
Two months later it told investors to expect $3.2 to $4.3 billion of restructuring charges, including $2.0 to $2.5 billion of content impairments and development write-offs. In February 2023 the CFO raised the cost synergies target from $3.5 billion to $4 billion.
The cuts landed on a creative culture built around HBO and the Warner Bros. studio. Writing off finished work told talent that finance now came first, the kind of culture clash that derails integrations.
That risk can be mapped before signing through leadership and culture diligence, then managed with a talent retention plan. Combining two operating models is hard at any size, as we saw in Apollo’s combination of Emerald and Questex.
Paying down $19.5 billion of debt
After the WarnerMedia Discovery merger, deleveraging shaped every decision. Gross debt was $53.0 billion at June 30, 2022. WBD cut it to $49.5 billion by the end of 2022, $44.2 billion in 2023, $40.0 billion in 2024 and $33.5 billion by the end of 2025.
Figure 3. WBD cut gross debt by $19.5 billion in three and a half years. Steps are net changes in reported gross debt. Source: WBD earnings releases, Q2 2022 to Q4 2025.
| Year | Revenue | Net income (loss) to WBD | Gross debt at year-end | Streaming subscribers |
|---|---|---|---|---|
| 2022* | $33.8B | ($7.4B) | $49.5B | 96.1M |
| 2023 | $41.3B | ($3.1B) | $44.2B | 97.7M |
| 2024 | $39.3B | ($11.3B) | $40.0B | 116.9M |
| 2025 | $37.3B | $0.7B | $33.5B | 131.6M |
The biggest loss came in 2024, when WBD took a $9.1 billion goodwill impairment on its networks business. It cited the gap between its market value and book value, weak U.S. linear advertising and uncertainty over sports rights renewals, including the NBA.
Hitting a cost target does not create value when the capital structure is this heavy. Forward Air’s Omni deal taught the same lesson at a smaller scale.
From a planned split to a $110 billion sale
On June 9, 2025, WBD said it would split into two companies by mid-2026: Streaming & Studios (Warner Bros., HBO, HBO Max, DC Studios) and Global Networks (CNN, TNT Sports, Discovery). In effect, it planned to undo much of the 2022 combination.
Bidders arrived first. On December 5, 2025, WBD agreed to sell its studios and streaming business to Netflix for $27.75 a share, about $82.7 billion in enterprise value. Three days later, Paramount Skydance launched a hostile $30-a-share cash tender for the whole company.
On February 26, 2026, WBD’s board declared Paramount’s raised $31-a-share cash offer superior, with Paramount covering the $2.8 billion fee owed to Netflix. Netflix declined to match, calling the deal “no longer financially attractive”.
Shareholders approved the sale on April 23, 2026. It closed on October 6, 2026 at about $31.02 a share in cash, including a ticking fee, in a deal valued at about $110 billion. The combined company is named Skydance and targets at least $6 billion of synergies.
That sale ended the WarnerMedia Discovery merger as a standalone story, four and a half years after it closed. WBD holders were paid in cash, and the debt, the networks and the integration work all passed to Paramount Skydance.
For AT&T, the deal was a clean exit, a reminder that the seller’s portfolio strategy can set the buyer’s agenda. It is the mirror image of Disney’s 21st Century Fox deal: Disney took on debt to buy scale, while WBD inherited the debt along with the scale.
Six questions the WarnerMedia Discovery merger raises for private equity
Few private equity deals use a Reverse Morris Trust, but carve-outs, spin-merges and combinations of two platforms raise the same questions.
The core lesson: do not underwrite scale without underwriting the debt and the operating model needed to run it.
- Whose problem does the structure solve? This one solved AT&T’s exit. Test what the buyer inherits through independent buy-side diligence.
- Can the cash flow carry the debt in a downside case? WBD started at 5.0x leverage, and its networks business weakened from there. Stress-test debt capacity in financial due diligence.
- Were the projections built for the market at close? The 2023 plan missed revenue by more than $10 billion. Refresh the model between signing and close.
- Which culture will run the company? Decide it before day one, and write it into the 100-day integration plan.
- What do the cuts take away? Track revenue and talent alongside savings through finance integration and synergy tracking.
- Is the portfolio stronger together or apart? WBD’s split plan answered that three years in. Plan shared systems so they can be integrated or separated later.
These questions are easier to answer when diligence, post-merger integration and value tracking sit with one team, which is the point of an end-to-end M&A capability.
Sources
- AT&T and Discovery, WarnerMedia and Discovery to combine, May 17, 2021
- AT&T and Discovery, AT&T and Discovery close WarnerMedia transaction, April 8, 2022
- Warner Bros. Discovery, Q2 2022 earnings release, August 4, 2022
- NPR, Warner Bros. kills off Batgirl movie, August 3, 2022
- Warner Bros. Discovery, Form 8-K on restructuring charges, October 24, 2022
- Deadline, WBD now sees $4 billion in post-merger cost savings, February 2023
- Warner Bros. Discovery, Q4 and full-year 2022 results, February 23, 2023
- Warner Bros. Discovery, Q4 and full-year 2023 results, February 23, 2024
- Warner Bros. Discovery, Q2 2024 results, August 7, 2024
- Warner Bros. Discovery, Q4 and full-year 2024 results, February 27, 2025
- Warner Bros. Discovery, WBD to separate into two media companies, June 9, 2025
- Netflix, Netflix to acquire Warner Bros., December 5, 2025
- Paramount Skydance, All-cash tender offer for Warner Bros. Discovery, December 8, 2025
- Warner Bros. Discovery, Q4 and full-year 2025 results, February 26, 2026
- Warner Bros. Discovery, Board determines Paramount Skydance proposal superior, February 26, 2026
- Netflix, Netflix declines to raise offer for Warner Bros., February 26, 2026
- Warner Bros. Discovery, Stockholders approve transaction with Paramount Skydance, April 23, 2026
- CBS News, Paramount closes $110 billion deal to acquire Warner Bros. Discovery, October 6, 2026
- Skydance, Paramount completes acquisition of Warner Bros. Discovery, October 6, 2026
