Inside the Discovery-AT&T Deal: Cute Emails, a Big Loan and Now, a Media Giant

In the predawn hours of April 1, David Zaslav, the chief executive of Discovery, arrived at a rented townhouse in Manhattan’s Greenwich Village — decorated with photos of rock stars and one of the actor Steve McQueen in sunglasses holding a gun — to prepare for a meeting that would soon reverberate across the American media industry.

Sworn to secrecy, Mr. Zaslav’s lieutenants snacked on a breakfast of artisanal doughnuts from a 24-hour bakery as they finalized their pitch. Just before 8 a.m., ahead of schedule, their quarry arrived: John Stankey, the AT&T chief executive who controlled the WarnerMedia assets that Mr. Zaslav coveted.

A journey that began with an informal, emoji-speckled email exchange in February was now fully underway. The covert discussions would eventually last three months, stretching from Dallas to the Denver suburbs to downtown Manhattan, where a war room was established in the cramped garden level of the rented townhouse. To prevent leaks, bankers used maritime nicknames like “Columbus” and “Magellan.” Even the chief executive of WarnerMedia was kept in the dark while his company was being negotiated out from under him.

It would culminate on Monday with the announcement of a blockbuster media deal that combined AT&T’s WarnerMedia, including HBO, CNN and the Warner Bros. film studio, with Discovery’s cable and broadcast holdings, creating a powerful new force in American entertainment, sports, reality TV, news and streaming video. And it represented an astounding late career act for Mr. Zaslav, 61, that would put him in control of one of the biggest media companies in the world.

April 1 was “the moment when we started to get to work to put this deal together,” Bruce Campbell, Discovery’s chief strategist, recalled in an interview.

This account is based on interviews with 18 people who helped put together or had knowledge of the biggest media deal of the year, many of whom spoke on condition of anonymity in order to share the details of sensitive conversations.

Like many a modern romance, the marriage of two of the country’s biggest media companies started with an emoji.

On a chilly Saturday in February, Mr. Zaslav was watching the Golf Channel at his oceanfront East Hampton estate when he tapped out an email to the man he wanted to woo. “You around….” Mr. Zaslav wrote to the AT&T chief executive John Stankey just before 3 p.m. on Feb. 13, adding icons of a golfer and sunglasses. “I’ve been thinking….”

Only a few minutes passed before his iPhone beamed with the reply. “Always scares me when you do that :)” Mr. Stankey replied. “Would you like to chat?” Their initial conversation lasted several hours.

Mr. Zaslav invited Mr. Stankey to visit him in New York on March 2. Mr. Zaslav lives in Conan O’Brien’s former apartment on Central Park West, but he bought a townhouse in Greenwich Village after his wife, Pam, grew weary of Mr. Zaslav’s impromptu meetings at their home.

That townhouse was under renovation — so Mr. Zaslav rented another one, where he eventually met with his potential partner from AT&T.

As the conversations gathered intensity, Mr. Zaslav looped in his Discovery brain trust for the April 1 meeting with Mr. Stankey, where he needed to put his best foot forward.

Around 5:30 a.m., Mr. Zaslav was joined by two associates: Gunnar Wiedenfels, Discovery’s chief financial officer, and Mr. Campbell, his longtime lieutenant and a colleague of 24 years, who had helped hammer out many of Discovery’s acquisitions, including its $14.6 billion purchase of Scripps in 2018 and the $1.1 billion purchase of Eurosport in 2015.

After the group from AT&T arrived, they all gathered in a room so small that any time anyone received a call, the person would have to excuse themselves and leave the room to take it. Mr. Campbell spent a good part of the next four weeks pacing around an adjacent kitchen island talking on the phone. The townhouse was decorated with vintage photos of rock stars and movie idols like Bob Dylan, the Rat Pack and a 1960s photo of McQueen wielding a revolver.

“That photo,” Mr. Campbell said, “became a totem or sort of the mascot of the deal to me.”

Even as Mr. Zaslav negotiated with Mr. Stankey, he knew he would also have to sell the idea to two of the biggest names in American media. John Malone, the billionaire chairman of Liberty Media, and Steven Newhouse, the chairman of Advance, owner of Condé Nast, were the primary shareholders in Discovery and would need to sign off.

For advice, Discovery turned to Allen & Company; AT&T tapped LionTree, the boutique firm run by the Hollywood deal maestro Aryeh Bourkoff. Mr. Bourkoff’s presence was noteworthy: one of his earliest clients was Mr. Malone.

In a reminder of the whiplash-inducing speed at which AT&T was shedding WarnerMedia, once a prized asset, one of the bankers involved, Kurt Simon of Goldman Sachs (hired by AT&T), had helped broker its purchase of Time Warner just three years prior. Now he was back at the negotiating table figuring out how to unwind it.

Code names were used to ensure secrecy. For AT&T, WarnerMedia was “Magellan” and Discovery was “Drake.” The Discovery side had its own cryptic handles, calling the deal “Project Home Run,” with each company named for baseball greats: “Williams” for WarnerMedia, “Aaron” for AT&T and “DiMaggio” for Discovery.

For AT&T, the appeal was obvious: shedding a big portion of the crushing debt the company had amassed. But in order to complete the transaction, AT&T needed a bridge loan — worth more than $40 billion. Goldman Sachs could not provide the entire amount, so JPMorgan stepped in to help cover the loan.

Mr. Stankey insisted on another point: He wanted the new company to have a simple ownership structure, with just one class of shares that anyone could buy. It would make the company smoother to run. And by eliminating the use of shares with disproportionate voting power, the AT&T leader would ensure that the new company could be an easier takeover target in the future, should an even bigger suitor — say, Amazon or Apple — come calling.

To meet this demand, Mr. Zaslav would need to convince both Mr. Malone and the Newhouse family to relinquish some of their power in the newly formed business. (Together, Liberty and Advance controlled about 44 percent of Discovery’s voting rights.) In exchange for the concession, Advance was rewarded with a stake worth 14 percent more than its shares would have otherwise fetched in the new company. Mr. Malone and Mr. Newhouse will both sit on the board.

Deals are rarely smooth, and an anomaly with Discovery’s share price dovetailed with the negotiations. Discovery’s stock began to inexplicably rocket in February and March to $75 from $45 because of a convoluted trading scandal involving Archegos, a little-known private investment firm that bet big on Discovery and other companies via derivatives using billions in borrowed money.

With banks forced to buy shares to hedge their spiraling exposure to Archegos, Discovery’s market value jumped nearly 60 percent, for no obvious reason to outsiders. But by May, the stock had returned to where it was during Mr. Zaslav’s initial approach, and the two sides ultimately forged a deal that gave 71 percent of the new company to AT&T shareholders and 29 percent to Discovery.

Now, the trick was closing it before word could leak out.

One awkward conversation awaiting Mr. Stankey was with Jason Kilar, the former chief of Hulu tapped by AT&T, with great fanfare, just a year earlier to lead WarnerMedia. To mark the occasion of his first anniversary on the job, Mr. Kilar had agreed — with AT&T’s blessing — to be profiled by The Wall Street Journal. He invited a reporter in late April to interview him on the Warner Bros. lot in Burbank, Calif., unaware that across the country, his colleagues were feverishly working to close the deal.

At some point during the week of May 3, Mr. Stankey dropped the bomb: He informed Mr. Kilar that the company would soon change hands, and it was unclear what Mr. Kilar’s role might be. The 2,600-word Journal profile of Mr. Kilar, which included a quote from Mr. Stankey, was published on May 14, three days before the deal was announced.

Usually a cheerful presence on Twitter, Mr. Kilar didn’t bother sharing the article with his 37,000 followers. By the weekend, Mr. Kilar had retained the entertainment power lawyer Allen Grubman to start negotiating his exit.

A little after 7 a.m. on Sunday, Mr. Zaslav boarded a corporate jet at a small airport on the East End of Long Island, not far from his home, to head to AT&T’s Dallas headquarters to put the finishing touches on the deal. But just over an hour into the flight, word got out through Bloomberg’s black-and-orange terminal screens: “AT&T is in talks to combine content assets with Discovery.”

“Do we have a problem?” Mr. Zaslav asked his colleagues, 36,000 feet in the air. Three months had passed without a leak; could this derail everything?

From across the cabin, David Leavy, Discovery’s chief corporate operating officer, offered reassurance: “We’ll hold the line.”

The jet, a Falcon 7X, landed in Dallas after a three-hour flight. AT&T and Discovery’s boards had convened via video and the deal was unanimously approved. Mr. Malone, 80, patching in from his Colorado estate, reflected on how Discovery, a tiny channel dating from 1985, grew into a behemoth that had now absorbed such fabled American brands as Warner Bros. and Turner.

The paperwork wasn’t quite finished, but both sides still decided to toast the occasion. A group of Discovery and AT&T executives retired to the telephone company’s executive dining room, with its panoramic views of the Dallas skyline. Dinner included options of ravioli, steak or fish. The sun was just beginning to set as Mr. Zaslav gave a toast.

“These assets aren’t just better together,” he said. “We think it’s going to be the best media company in the world.”

Brooks Barnes contributed reporting.