The premium video streaming industry continued the trend toward consolidation Monday with word that AT&T and Discovery Communications have reach a definitive agreement to combine AT&T’s WarnerMedia with Discovery, to create an even larger streaming giant.

Discovery’s CEO David Zaslav will become the head of the combined company, which will now include streaming assets in HBO Max, Discovery Plus and a number of cable networks including CNN, TBS, TNT, and Cartoon Networks combined with Discovery’s unscripted channels HGTV, Food Network, Discovery, TLC and OWN.

The agreement was described as an all-stock, Reverse Morris Trust transaction, through which AT&T, which bought WarnerMedia three years ago for $85 billion, will receive $43 billion (subject to adjustment) in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt. AT&T also agreed to spin off DirecTV in March.

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AT&T’s shareholders will receive stock amounting to 71% of the new company.

Discovery shareholders will get 29% of the new company. The Boards of Directors of both AT&T and Discovery have approved the transaction.

The company’s believe the union will accelerate plans to lead the global direct-to=consumer (DC) streaming services space, by bringing together “the strongest leadership teams, content creators, and high-quality series and film libraries in the media business,” according to a statement announcing the plan.

WarnerMedia brings robust studios and a portfolio of iconic scripted entertainment, animation, news and sports while Discovery provides a vault of unscripted and international entertainment and sports content.

The new company will have a projected 2023 Revenue of approximately $52 billion, adjusted EBITDA of approximately $14 billion, and an industry leading Free Cash Flow conversion rate of approximately 60%, the announcement said.

This is also expected to enable $3 billion in expected cost synergies annually enabling an investment increase to generate new content, digital innovation, and scaling the global DTC business.

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By Greg Tarr

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