AT&T Mulls $4 Billion Sale Of Gaming Division- Report

AT&T (T) is considering selling its Warner Bros. Interactive Entertainment gaming unit for around $4 billion to reduce its heavy debt burden, people familiar with the matter have told CNBC.

According to the sources, potential buyers include major gaming companies Take-Two Interactive Software (TTWO), Electronic Arts (EA) and Activision Blizzard (ATVI). However, they added that no deal is assured or imminent at this point.

One option for a deal could include a commercial licensing agreement which would allow AT&T to continue to drive revenue from its intellectual property, CNBC reported.

However VentureBeat reported a separate source suggesting a price closer to $2 billion because the gaming division does not own some of the key franchises at the core of its major games like “Harry Potter” and “Game of Thrones.”

Warner Bros. Interactive Entertainment is made up of 10 game studios including TT Games, and owns the “Mortal Kombat” and the “Scribblenauts” series. It was snapped up by AT&T as part of the $109 billion Time Warner deal which closed in 2018 and left T struggling to manage a $150 billion debt.

Ex WarnerMedia CEO John Stankey will replace Randall Stephenson as CEO at AT&T on July 1. He takes the helm of America’s second-largest wireless service provider at a notably challenging time.

Shares in T are currently trading down 22% year-to-date, with AT&T recently reporting soft first quarter earnings alongside ~ $433M ($0.05 per share) of EBITDA headwinds due to COVID-19 disruptions.

“AT&T will continue to slash expenses and is aiming for $6B over the next three years” commented Oppenheimer analyst Timothy Horan. He has a buy rating and $47 price target on the stock explaining “Importantly, the dividend seems safe and debt reduction can continue with what we and the company estimate to be a 60% payout ratio.”

Overall, analysts have a Moderate Buy T consensus, with 8 recent buy ratings, 12 holds and 2 sells. Meanwhile the average analyst price target of $34 indicates 11% upside potential from current levels. (See T stock analysis on TipRanks).