AT&T said it received a "favorable" ruling from the IRS, signaling that the deal to combine WarnerMedia with Discovery would be tax -free for shareholders.
The $43 billion union would put brands such as HBO, CNN, Animal Planet and Food Network under a new publicly traded company called Warner Bros. Discovery.
AT&T will spin off WarnerMedia, exiting the entertainment business as part of the transaction. Its shareholders would own 71% and Discovery shareholders 29% of Warner Bros. Discovery. The deal is expected to close mid-2022.
"The transactions are expected to be tax-free to stockholders of the Company for U.S. federal income tax purposes, except to the extent that cash is paid to stockholders of the Company in lieu of fractional shares in the Distribution or the Merger," AT&T disclosed in a filing with the U.S. Securities and Exchange Commission this week.
The IRS ruling follows the European Commission's antitrust clearance of Discovery's plans last week. David Zaslav, Discovery's president and CEO, called it "a key milestone toward completing our proposed transaction with AT&T."
"Today we move one important step closer to creating Warner Bros. Discovery, a premier entertainment company that will be one of the world's leading investors in premium content and one positioned to serve consumers with what we believe will be the most complete content offering under one roof," Zaslav said in a statement released on Dec. 22.
But the mega-deal still faces regulatory approval in the U.S. Earlier this month, more than 30 Democratic members of Congress said the deal raises antitrust concerns in a letter to U.S. Atty. Gen. Merrick Garland and Assistant Atty. Gen. Jonathan Kanter.
"The merger threatens to enhance the market power of the combined firm and substantially lessen competition in the media and entertainment industry, harming both consumers and American workers," the letter said.
On Dec. 6, AT&T CEO John Stankey said at the UBS Global TMT Conference that he thought "what's been articulated in those letters is really unfounded" and "there's nothing unusual about this transaction."
Previously, WarnerMedia and Discovery have said they do not think the deal is anti-competitive, noting Discovery does not own a movie studio and is smaller than WarnerMedia.
