How David Zaslav Overcame Stock Drama and Pandemic Woes to Pull Off a Stealth WarnerMedia Takeover

·7-min read

The first swing in the talks that led to the union of Discovery and WarnerMedia was an email sent by David Zaslav to John Stankey on Feb. 13.

That was around the time that the Discovery CEO and his AT&T counterpart had planned to meet for a golf date at the storied Pebble Beach Pro-Am golf tournament in central California that is sponsored by the telecom giant, as they did last year. But the amateur portion of event was canceled this year due to the pandemic.

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Instead, Zaslav was watching the pro tournament on TV at his home in East Hampton and began thinking about Stankey and AT&T. The telco giant has been on a topsy-turvy ride since it swallowed up Time Warner in an $84 billion deal three years ago.

“I was thinking about John and what would we look like together with his assets and the Discovery global reach and the great libraries we have. I just fired off an email,” Zaslav told Variety. The two got on the phone and spoke for about three hours later that day. “We’ve all had a lot of time to ponder life during the pandemic,” Zaslav said.

Three months and four days later, Discovery and AT&T today unveiled a deal that shocked the industry when the news broke early Sunday morning. Discovery even rode out a black-swan event with its shares getting wrapped up in the Archegos Capital Management implosion in March.

In late February, the discussions took on urgency in part because Netflix and Disney released financial data indicating that their streaming platforms were growing by leaps and bounds during pandemic conditions. WarnerMedia was seeing traction with HBO Max after Warner Bros.’ movies started to land on the service day-and-date with theatrical releases.

“With Disney accelerating at that point because of COVID, I just looked at that and thought who could take that on? Who could be a global offering that formidable,” Zaslav said. “When you put us together — Batman, Superman, Wonder Woman, ‘Game of Thrones,’ ‘Sex and the City,’ HBO and Discovery being everywhere in the world with local content — we’re better together. I’ve been doing deals my whole life. The standard always is, are you better together? In this case were are not just better together. We are the best media company in the world, more global than anyone else with all the news, sports, entertainment and huge tentpoles that we bring together.”

But after a final multi-day sprint of negotiations (“I haven’t slept in two days,” Zaslav said in an interview today), AT&T and Discovery inked an agreement to spinoff WarnerMedia into a standalone company that will combine with Discovery to compete full-throttle with content-rich direct-to-consumer giants like Netflix and Disney. Zaslav is on top as the CEO, a shocking turn of events that has thrown WarnerMedia into turmoil again as it represents the third massive management restructuring in as many years.

The enlarged Discovery-WarnerMedia will have massive reach across news, sports, unscripted, lifestyle content and some of entertainment’s biggest franchises and tentpole events from the HBO and Warner Bros. imprimaturs.

“It’s going to be a really a fabulous company with all the pieces to be successful globally — sports, news, the best TV production library in the world, an extraordinary motion picture studio with the best talent,” Zaslav said. “It’s just going to be a really formidable opportunity.”

The first face-to-face talks between Zaslav and Stankey were held March 2 at Zaslav’s Manhattan brownstone. The circle of people who knew about the discussions was kept extremely tight because both CEOs had every reason to keep the talks from going public — otherwise it would be a neon sign flashing to other potential bidders that Discovery and WarnerMedia were officially up for sale. A small group of insiders had several other working sessions at Zaslav’s brownstone — one daylong sprint included a round of sandwiches and other take-out fare — before the circle widened ever so slightly out of necessity.

“It was the only way,” Zaslav said. “John and I are friends. We trust each other. What was really important was that if there was a leak it could potentially put WarnerMedia and Discovery into play. We were not looking to sell. We’ve been doing quite well. I didn’t want the idea that were doing a deal on the street because it would really be a distraction and John was really concerned. There were only two other people at Discovery that knew for a long time. Our culture is pretty tight.”

A few weeks after the March 2 meeting, Zaslav was driving in Los Angeles when he got a troubling call. “All of a sudden I get a phone call and Morgan Stanley is selling a 40 million block of Discovery shares,” he said. The next day, he was eating a turkey club sandwich at the Beverly Hills Hotel when he got a call about Goldman Sachs selling off a 30 million chunk of shares.

It would take a few more days for the specifics behind the stock volatility to emerge. The situation frustrated Zaslav because Archegos was able to avoid securities regulations that require disclosures for entities that acquire more than 5% of a public company.

Discovery itself has some protections built-in that prevent anyone from amassing more than 10% of shares without the approval of the board, all of which magnified the shock for Zaslav. Archegos turned out to have been scooping up shares in Discovery, ViacomCBS and other companies using a combination of loans from big banks and hedge instruments. When the share price of ViacomCBS fell in late March, Archegos was caught in a cash crunch, spurring its lenders to salvage what they could of shares that they held as loan collateral.

“This was a cascading sale and so unexpected,” he said. “In some ways it was so disguised that it was illicit. For about a month I knew more about (credit) swaps that I ever wanted to.”

Asked if he worried that the unexpected stock volatility would torpedo the AT&T discussions, Zaslav paused and replied “Yes, because I didn’t know how far down was down for us.”

But Discovery’s shares quickly recovered after the mass sales abated. And its business fundamentals remain strong, even if it is under pressure to grow. Zaslav has spent the past few years talking up Discovery’s unique attributes and its ability to go it alone in a changing pay TV eco-system. Today, he freely acknowledges that bigger is better in the epic streaming transformation of media that is unfolding on the world stage.

“The more John and I looked at it the more we were convinced that the ambition is simple. If we do this then Warner Discovery is not only going to be a leader but we could be a sustainable long-term player with a real legacy,” he said.

Moreover, the $45 billion or so cash that the spinoff will generate for AT&T will help ease the blue-chip mainstay’s debt and dividend pressure. That should put AT&T in a better position to help support Discovery-WarnerMedia’s growth. “They can be single-minded in the mission of being the best telecom/communicatios company in the world,” he said.

Zaslav’s candid comments on the dynamics that drove the deal underscore how significantly media CEOs see the current landscape as a grow-or-sell moment for traditional media assets. As Zaslav noted, media and telecom are continuing down the path of consolidation into a handful of gigantic players vying for consumer dollars.

“We’ll be competing against Netflix and Disney. In telecom its AT&T versus Verizon and T Mobile. We’ll use this momentum, this single-minded focus to build,” Zaslav said. “And 70 percent of (AT&T) shareholders will be on the boat with me through our ride the media business with all of its opportunities and challenges. We have a real shot not to just get over the finish line but create our own kind of path.”

(Pictured: Discovery’s David Zaslav and AT&T’s John Stankey)

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