The AT&T logo is displayed at a store in Washington, DC, on January 18, 2022. - AT&T and Verizon agreed Tuesday to a partial delay in activating their 5G networks following an outcry from US airlines, who said the rollout could lead to travel chaos. (Photo by Stefani Reynolds / AFP) (Photo by STEFANI REYNOLDS/AFP via Getty Images)

AT&T‘s Tuesday decision to sell its stake in WarnerMedia is not surprising, given CEO John Stankey’s recent comments.

However, the move may disappoint those investors who had hoped for a split-off or exchange offer. This would have led to the retirement of more 20% of AT&T shares.

Premarket trading on Tuesday saw shares of AT&T (ticker T) fall 93cs or 3.6% to $24.57

AT&T also stated that it would pay a $1.11 per year dividend to its shareholders, down from $2.08 per share. This is due to the merger of its WarnerMedia business and Discovery (DISCA), which is expected close in the second quarter. Warner Bros will be the new company. Discovery.

Although the payout move was expected, the annual dividend payments of $8 billion based on the company’s 7.2 million shares outstanding will exceed the previous guidance of $8 to $9 billion. About 40% of AT&T’s annual free cash flow postdeal is made up by dividend payments.

Barron’s reported Monday that AT&T seemed to be moving toward a spinoff from WarnerMedia. Frank Louthan, a Raymond James analyst, projected a $1.15 per year dividend.

Based on the $1.11 annual payment, the new yield for AT&T will be 6.2%. This is a decrease of more than 8% currently. The Warner Bros. value is subtracted to calculate the yield. AT&T shareholders will receive Discovery stock at the current premarket price $24.57. Discovery’s class-A shares will be transformed into Warner Bros. The stock of Discovery closed Monday at $27.91 after the merger. Comparatively, rival Verizon Communications(VZ), now yields 4.8%.

AT&T shareholders should receive approximately $6.70 per share in Warner Bros. Based on the current Discovery price, AT&T shares will receive Discovery stock. AT&T shareholders will receive approximately 0.24 shares in the new Warner Bros. Each AT&T share will include Discovery stock

AT&T’s strategy is to concentrate on core telecommunications operations, generate enough cash flow for investment, and reduce its debt. The WarnerMedia merger into Discovery and the dividend reduction are part of AT&T’s strategy. AT&T stated that its dividend would be among the highest of major corporations and within S&P500 index.

“In evaluating distribution forms, we were guided to one objective–executing long-term value creation in the most seamless manner possible,” AT&T CEO John Stankey stated in a statement Tuesday.

“We are confident that the spinoff will achieve this objective because it is simple, efficient, and results in AT&T shareholders holding shares of both companies. Each company will be able to drive higher returns consistent with its respective market opportunities.”

Wall Street was anticipating a split-off before Stankey’s comments last week on AT&T’s earnings conference call and later on CNBC. A spinoff would be easier, faster, and more understandable by AT&T’s large retail base. It wouldn’t involve the “leakage of value” that is associated with a split-off, he stated.

AT&T shareholders don’t have to do anything with the spinoff. They will receive approximately 0.24 shares of Warner Bros. Each AT&T share will be entitled to Discovery on a tax-free basis at the close of the transaction.

AT&T shareholders will receive approximately $47 billion worth of Warner Bros. Based on current prices, Discovery stock. AT&T shareholders will hold 71% of the newly formed media company. AT&T will also receive $43 billion cash and other consideration as part of the merger.

AT&T shareholders would have been able to exchange their AT&T stock in the split-off for Warner Bros. Discovery. AT&T would need to offer a premium in order to encourage holders to exchange shares, such as a share to swap for Discovery stock. Stankey stated that he was not excited about the premium.

AT&T shareholders will now be able participate in two out of favor businesses, media and telecom. AT&T stock remains at a 10-year low while Discovery stock is right where it was five years ago. Investors are concerned about high capital costs and competition in the wireless business. They also worry about competitive pressures and the uncertain profit outlook for streaming. Warner Bros will be the focus. Discovery.