AT&T said it would “reset” its dividend as part of the transaction, to a payout ratio of about 40% of free cash flow. Gabby Jones/Bloomberg AT&T stock is the biggest loser in the S&P 500 on Tuesday, a day after announcing a megadeal to shed its media assets and focus on its 5G and fiber-internet telecom core. That strategic refocus was seen as a positive by investors and analysts, but it comes at the cost of a dividend cut after the proposed spinoff closes. Worse still, it doesn’t solve all of the company’s problems. AT&T stock (ticker: T) lost 4.5% on Tuesday morning, to about $30, after losing 2.7% on Monday. Shares of Discovery (DISCA), which will combine with WarnerMedia, reversed an earlier decline to trade up about 1%, recovering some of Monday’s 5.1% decline.  The deal will provide AT&T with $43 billion in cash and other assets to pay down debt. AT&T shareholders will own 71% of the combined WarnerMedia/Discovery, with Discovery shareholders owning the rest. Discovery CEO David Zaslav will lead the company, and the merger is expected to close in the middle of 2022. AT&T said it would “reset” its dividend as part of the transaction, to a payout ratio of about 40% of free cash flow, which management estimates at least $20 billion in 2023. That means roughly $8 billion in annual payout, or some $1.11 per share (AT&T has about 7.19 billion shares outstanding, per its latest filing). Should the post-spinoff equity trade for the same annual dividend yield as Verizon Communications ’ (VZ) current 4.3%—given a similar leverage and business profile—it would be worth $186 billion, or about $25.88 per share. Several Wall Street analysts did a version of that math this week, and came up with similar values for AT&T’s telecom businesses after spinning off WarnerMedia. Valuing the newly created media company is a tougher task, and depends on investors’ views of its future streaming prowess. Management said Monday that they expect WarnerMedia/Discovery to generate about $13 billion in adjusted Ebitda—short for earnings before interest, taxes, depreciation, and amortization—in 2023, and to be levered at 5 times net debt to adjusted Ebitda at closing. That implies about $65 billion of net debt on the new entity. The market ascribes vastly different multiples to streaming winners and legacy media players. Walt Disney (DIS), which has a runaway streaming success in Disney+, trades for 17.3 times its enterprise value to 2023 Ebitda estimate, while streaming pure-play Netflix (NFLX) goes for 22.3 times. Relatively subscale media companies ViacomCBS (VIAC) and premerger Discovery each trade for about 8.5 times their 2023 EV/Ebitda ratio. WarnerMedia/Discovery will bring HBO Max and Discovery+ under one roof, plus a deep library of content from their multiple brands and a combined annual production budget of about $20 billion, per management. But the business today is more of a collection of cable networks and a Hollywood movie studio, with the streaming services not expected to turn a profit for several years. Newsletter Sign-up Review & Preview Every weekday evening we highlight the consequential market news of the day and explain what's likely to matter tomorrow. At a Disney-like multiple of 17 times 2023 Ebitda, WarnerMedia/Discovery would have an enterprise value of $221 billion and its equity would be worth $156 billion after subtracting net debt. AT&T shareholders’ 71% stake would be worth $110.8 billion, or about $15.40 per current AT&T share, if the stock gets the same credit from the market as Disney’s. At an 8.5 times EV/2023 Ebitda ratio in line with ViacomCBS’ and Discovery’s today, the same math yields a value of about $4.49 per share. Add the $25.88 value of AT&T’s telecom businesses, and AT&T stock today could be worth between $30.37 and $41.28—depending on whether investors believe WarnerMedia/Discovery will look more like ViacomCBS or Disney in the future.  The reality is likely to be somewhere in between. But after a nearly 10% selloff in the past two days, AT&T stock is trading below both of those values. Write to Nicholas.Jasinski@barrons.com