AT&T To Sell Crunchyroll To Sony For $1.18B; Morgan Stanley Says Buy

AT&T (T) has agreed to sell its Crunchyroll animation business to Sony’s Funimation Global Group in a cash deal worth $1.175 billion.

Crunchyroll, which is part of AT&T’s WarnerMedia business, is an animation direct-to-consumer service with more than 3 million SVOD subscribers. The transaction will provide Funimation, a joint venture between Sony (SNE) Pictures Entertainment and Sony Music Entertainment’s (Japan) subsidiary, Aniplex, with access to 90 million registered users across more than 200 countries.

Founded in 2006, Crunchyroll offers AVOD, mobile games, manga, events merchandise and distribution. The anime streaming service also includes the licensing of theatrical, TV, home video, consumer product, and video game rights.

“The Crunchyroll team has done an extraordinary job of not only growing the Crunchyroll brand but also building a passionate community of anime fans,” said WarnerMedia’s Chief Revenue Officer Tony Goncalves. “By combining with Funimation, they will continue to nurture a global community and bring more anime to more people. I’m incredibly proud of the Crunchyroll team and what they have been able to accomplish in the digital media space in such a short period of time. They’ve created an end-to-end global ecosystem for this incredible art form.”

The transaction is subject to customary closing conditions, including regulatory approvals, the two companies said in a statement.

The deal announcement comes a day after AT&T CEO John Stankey stated in an update to shareholders that the company continues to take steps to monetize non-core strategic assets. Strong cash generation and disciplined capital allocationprovide AT&T with the flexibility to invest in market-based priorities of fiber, 5G and HBO Max, and sustain its dividend, Stankey said. (See T stock analysis on TipRanks)

Stankey confirmed that AT&T is on track to generate $26 billion or more in free cash flow for full-year 2020, with a full-year dividend payout ratio percentage in the high 50s%. For 2021, he expects the company to generate free cash flow in the $26 billion range, not including proceeds from asset sales, and gross capital investment in the $21 billion range.

In reaction to the update, Morgan Stanley analyst Simon Flannery reiterated a Buy rating on the stock with a $36 price target (14% upside potential).

Shares in AT&T have advanced 8% over the past five days, but they are still down almost 20% on a year-to-date basis. That’s with a Moderate Buy analyst consensus based on 8 Buys, 6 Holds, and 3 Sells. Meanwhile, the average analyst price target of $30.85 indicates 1.9% downside potential lies ahead.