How David Zaslav pulled off a stealth takeover of WarnerMedia


The first swing in the talks that led to Discovery and WarnerMedia coming together was an email David Zaslav sent to John Stankey on February 13.

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

Instead, Zaslav was watching the pro tournament on TV at his home in East Hampton and started to think about Stankey and AT&T. The telecommunications giant has been in a reverse situation since it engulfed Time Warner in an $ 84 billion deal three years ago.

“I thought about John and what we would look like with his strengths, Discovery’s global reach and the great libraries we have. I just triggered an email, ”said Zaslav Variety. The two phoned and talked for about three hours later that day. “We all had a lot of time to think about 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 news broke early Sunday morning. Discovery even staged a black swan event with its shares engulfed in the implosion of Archegos Capital Management in March.

At the end of February, the talks became urgent in part because Netflix and Disney released financial data showing their streaming platforms were growing by leaps and bounds during pandemic conditions. WarnerMedia was seeing traction with HBO Max after Warner Bros. ‘Movies began to land on the day and date service with theatrical releases.

“With Disney speeding up at this point due to COVID, I just watched this and thought who could do it? That could be such a great overall offer, ”Zaslav said. “When you bring us together – Batman, Superman, Wonder Woman, ‘Game of Thrones’, ‘Sex and the City’, HBO and Discovery being all over the world with local content – we are better together. I have been in business all my life. The norm is always: are you better together? In this case, we’re not just better together. We’re the best media company in the world, more global than anyone with all the news, sports, entertainment, and huge tents that we put together.

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

The expanded Discovery-WarnerMedia will have a massive reach across news, sports, unscripted content, lifestyle, and some of the biggest entertainment franchises and flagship events from HBO and Warner Bros. printers.

“It will be a really fabulous company with all the pieces to be successful around the world – sports, news, the best TV production library in the world, an amazing film studio with the best talent,” Zaslav said. “It will just be a great opportunity.”

The first face-to-face talks between Zaslav and Stankey took place on March 2 at Zaslav’s Brownstone in Manhattan. The circle of people who were aware of the discussions was extremely tight as the two CEOs had every reason to prevent the discussions from being made public – otherwise it would be a flashing neon sign to potential bidders other than Discovery and WarnerMedia were officially on sale. A small group of initiates had several more working sessions at Zaslav’s Brownstone – a day-long sprint included a round of sandwiches and other takeout – before the circle widened a bit 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 on the line. We weren’t looking to sell. We’re doing pretty well. I didn’t want the idea of ​​making a deal on the street because it would be a real distraction and John was really worried. There were only two other people in Discovery who had known for a long time. Our culture is quite tight. “

Weeks after the March 2 meeting, Zaslav was driving in Los Angeles when he received a disturbing call. “Suddenly I get a phone call and Morgan Stanley sells a block of 40 million 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 30 million shares.

It would take a few more days for the specifics of equity 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 state-owned company.

Discovery itself has built-in protections that prevent anyone from hoarding more than 10% of the stock without board approval, which amplified the shock for Zaslav. Archegos was found to have raised shares in Discovery, ViacomCBS and other companies using a combination of loans from large banks and hedging instruments. When ViacomCBS’s share price fell at the end of March, Archegos was caught in a liquidity crunch, prompting its lenders to scavenge what they could of the shares they held as loan collateral.

“It was a stunt sale and so unexpected,” he said. “In some ways it was so disguised it was illegal. For about a month, I knew more about (credit) swaps than I had always wanted. “

When asked if he was concerned that the unexpected volatility in stocks could torpedo AT&T talks, Zaslav paused and replied, “Yeah, because I didn’t know how far we were going.

But Discovery’s shares quickly recovered from the drop in mass sales. And its business fundamentals remain strong, even though it is under pressure to grow. Zaslav has spent the past few years talking about Discovery’s unique attributes and its ability to go it alone in a changing pay-TV ecosystem. Today, he freely recognizes that bigger is better in the epic ongoing media transformation unfolding on the global stage.

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

In addition, the roughly $ 45 billion in cash the split will generate for AT&T will help ease the pressure on the blue-chip pillar’s debt and dividends. This should put AT&T in a better position to help support the growth of Discovery-WarnerMedia. “They can be determined to be the best telecom / communications company in the world,” he said.

Zaslav’s candid comments on the dynamics behind the deal underscore how media CEOs view the current landscape as a time of growth or sale for traditional media assets. As Zaslav noted, media and telecommunications continue to consolidate into a handful of gigantic players vying for consumer dollars.

“We will be competing with Netflix and Disney. In telecommunications, its AT&T versus Verizon and T Mobile. We will use this momentum, this unique focus to build, ”Zaslav said. “And 70 percent of the shareholders (AT&T) will be on the boat with me through our media activity with all of its opportunities and challenges. We have a real chance not only to cross the finish line, but to create our own path. “

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

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