AT&T Inc. fell the most in more than a year as investors digested plans for a smaller dividend payout from the phone giant following the planned merger of its WarnerMedia division with Discovery Inc.

Shares of AT&T fell as much as 7.9 per cent Tuesday in New York, the steepest intraday decline since March 2020. The stock had gained 9.1 per cent so far this year through Monday’s close. Discovery shares fell less than 1 per cent Tuesday to US$33.80.

Without the cash flow from WarnerMedia, AT&T said Monday that it will lower its dividend payout ratio to 43 per cent of cash flow. That translates into to about US$9 billion annually, down from US$15 billion before, according to Colby Synesael, an analyst with Cowen & Co. As part of the deal, AT&T shareholders will own 71 per cent of the combined media company while Discovery investors will get 29 per cent. The parties value the new entity at US$130 billion, including debt.

 “I thought market was OK with that, but apparently not,” Synesael said. “Seems like it took a day for people to do the math.”

Cable pioneer John Malone, who has long controlled Discovery, issued a statement Tuesday reiterating that he backs the deal. “I am delighted to fully support this transaction, without asking for or receiving a premium for my high-vote shares,” Malone said. “I believe we are creating real value for shareholders and a legacy investment for my grandkids.”

The idea to create a new media giant, which is expected to have a name in the coming days, started with a text from Discovery Chief Executive Officer David Zaslav to his AT&T counterpart, John Stankey.

Their discussions coalesced into a merger of media properties combining AT&T’s HBO, Warner Bros. and TNT with a roster of Discovery channels, including the Food Network, and reality-TV shows like “Deadliest Catch” and “Naked and Afraid.”

“This is a major reset of the chessboard,” said Todd Lowenstein, chief equity strategist with the Private Bank at Union Bank. “Markets seem unwilling to render a favorable verdict at this point.”