BT Group plc (LON:BT.A) has agreed a set of definitive agreements with Warner Bros. Discovery Inc (NASDAQ:WBD) to form a 50:50 joint venture company to create a new premium sport offering for the UK & Ireland, and to transfer the operating businesses of BT Sport to Warner Bros. Discovery.
By bringing together the sports content offering of both BT Sport and Eurosport UK, the JV will have one of the most extensive portfolios of premium sports rights including UEFA Champions League, UEFA Europa League, the Premier League, Premiership Rugby, UFC, the Olympic Games, tennis Grand Slams featuring the Australian Open and Roland-Garros, cycling Grand Tours including the Tour de France and Giro d’Italia and the winter sports World Cup season.
Those customers who access BT Sport through BT directly, and the majority of BT TV customers, are set to receive discovery+, the non-fiction entertainment streaming service which is home to Eurosport’s live and on-demand streaming offer in the UK & Ireland, as part of existing subscriptions.
Both BT Sport and Eurosport UK will initially retain their separate brands and product propositions in the market before being brought together under a single brand in the future. BT Group (through its wholly owned subsidiary British Telecommunications plc) and Warner Bros. Discovery will enter into distribution agreements with the JV under which they will distribute the combined sports content to new and existing customers on their respective platforms and apps.
Key highlights
● BT Sport and Eurosport UK to be brought together to form a premium sports joint venture for customers in the UK & Ireland which will be owned 50:50 by BT plc and Warner Bros. Discovery.
● Warner Bros. Discovery and BT plc will each directly contribute, sub-license or deliver the benefit of their respective sports rights and distribution agreements for the UK & Ireland to the JV.
● The Transaction will deliver operational efficiencies through the transfer of the operating businesses of BT Sport to Warner Bros. Discovery.
● BT plc will receive £93m from Warner Bros. Discovery and up to approximately £540m by way of an earn-out from the JV, subject to certain conditions being met.
● BT plc will retain a 50% interest in the JV, and Warner Bros. Discovery will be granted a Call Option over BT plc’s interest in the JV, exercisable at specified points in the first four years of the JV.
● The Transaction is subject to customary closing conditions, including approvals by the relevant regulatory bodies and is expected to complete by the end of 2022.
Andrew Georgiou, President and Managing Director, Warner Bros. Discovery Sports Europe said “We are excited to bring fans a new premium sport offering that brings together everything they love from BT Sport and Eurosport UK. Combining this with our growing portfolio of premium entertainment content promises to deliver consumers a richer and deeper content proposition, not only providing greater value from their subscriptions but bringing sport to a wider entertainment audience.”
The Transaction constitutes a class 2 transaction for the purposes of the UK Financial Conduct Authority Listing Rules and, as such, BT Group plc shareholder approval is not required.
Lazard is acting as exclusive financial adviser to BT Group and CMS Cameron McKenna is acting as legal adviser to BT Group. DLA Piper is acting as legal adviser to Warner Bros. Discovery.
Additional information
Transaction Structure
The JV will be structured as a 50:50 joint venture, with each of BT plc and Warner Bros. Discovery holding equal voting rights in the JV.
At completion of the Transaction, the production and operational assets of BT Sport will transfer to and become a wholly owned subsidiary of Warner Bros. Discovery.
Governance
The Board of Directors of the JV will be equally represented between appointees of BT plc and Warner Bros. Discovery.
The Chairperson of the Board will be a Board Director nominated by each shareholder on a rotating basis, the first of which will be Marc Allera.
Consideration
● BT plc will receive £93m from Warner Bros. Discovery (payable in instalments over the three years following transaction completion) and up to approximately £540m by way of an earn-out from the JV during the earn-out period, subject to certain conditions being met.
● BT plc will retain a 50% interest in the JV, and Warner Bros. Discovery will be granted a Call Option over BT plc’s interest in the JV at a price to be determined at the time the option is exercised.
The earn-out period will end at the earliest of i) four years post completion of the Transaction, ii) the exercise by Warner Bros. Discovery of the Call Option, and iii) if the earn-out reaches the agreed cap.
Other distributions to shareholders
Any dividends (made after payments required under the earn-out) shall be paid in equal proportions, to BT plc and Warner Bros. Discovery.
Call Option
As part of the Transaction, Warner Bros. Discovery will have the right, but not the obligation, to exercise a call option to acquire the entire shareholding of BT plc in the JV (the “Call Option“). The Call Option will be exercisable at specified points during the first four years of the JV and is subject to certain conditions and arrangements. The price payable for 50% of the JV under the Call Option will be at a price to be determined at the time the option is exercised, plus any remaining consideration and earn-out that BT plc will be entitled to at that time (subject to certain conditions).
If the Call Option is not exercised by Warner Bros. Discovery (as detailed above), BT plc will have the ability to exit its stake in the JV either through a sale or IPO.
Proceeds cap
The consideration payable under the Transaction (including the Call Option) is subject to a cap which is below the threshold for a class 1 transaction (as defined by the UK Financial Conduct Authority’s Listing Rules) as at the time of this announcement.
Ancillary Agreements
The production and the operational assets of BT Sport to be transferred to Warner Bros. Discovery who, upon completion, will manage the day-to-day operations of the JV.
In addition, certain ancillary agreements and undertakings will be entered into between BT plc and Warner Bros. Discovery, and between BT plc, Warner Bros. Discovery and the JV; including those necessary to ensure continuity of service to customers, and relevant transitional arrangements.
As part of the Transaction, BT plc and Warner Bros. Discovery will each enter into distribution agreements with the JV to become the official UK distributor of the JV’s sports channels across both sets of platforms. BT plc’s agreement with the JV will extend beyond 2030, and for the first four years, includes a minimum revenue guarantee of approximately £500m per annum, after which the agreement will change to a fully variable arrangement.
The JV will also enter into a new agreement with Sky extending beyond 2030 to provide for its distribution of the JV’s combined sports content. BT plc will also enter into a distribution agreement with Warner Bros. Discovery to provide discovery+ to its direct BT TV and BT Sport customers.
Accounting treatment
Upon completion of the transaction, BT plc’s interest in the JV is expected to be classified as a Joint Venture under IFRS 11, and equity accounted for under IAS 28.
Information on BT Sport business
Based on unaudited management information, as at 31 March 2022, the value of the gross assets of BT Sport business to be contributed to the JV and the operating businesses of BT Sport was £339m and it had an operating loss for the year of £222m.
Information on Eurosport UK business
Based on unaudited management information, as at 31 March 2022, the value of the gross assets of Eurosport UK’s rights and distribution agreements contributed directly to the JV was £12m and it had an operating profit for the year of £16m.
Marc Allera, CEO BT’s Consumer division, said “As a global sports and entertainment broadcaster Warner Bros. Discovery is the perfect partner to work with us to take BT Sport to the next stage of its growth. We’re excited to be joining forces to bring the best of BT Sport together with Eurosport UK to create a fantastic new sports offer alongside all the entertainment that discovery+ has to offer BT customers.”
“I’m incredibly proud of the established, creative and innovative broadcaster that BT Sport has become. We have a brilliant team who are dedicated to broadcasting amazing sporting moments and we look forward to working with Eurosport UK to realise the opportunities that this next stage will bring both our team and our viewers.”
