Acquire Scripps Networks

Discovery to Acquire Scripps Networks for $14.6 Billion

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The transaction will bring together two big cable networks groups.

Discovery Communications and Scripps Networks Interactive have made it official, unveiling a deal that will combine the two cable networks companies known mostly for non-scripted and lifestyle content. Discovery will acquire Scripps in a cash-and-stock deal, valuing it at $14.6 billion.

Scripps operates HGTV, Travel Channel and Food Network, among others, while Discovery’s networks include the likes of Discovery Channel, Animal Planet, TLC and OWN.

The $90 per-share price tag of the deal, based on Discovery’s Friday closing price, represents a premium of 34 percent to Scripps’ unaffected share price as of Tuesday, July 18 before deal talks where first reported. The transaction is expected to close by early 2018.

Viacom had also been pursuing Scripps, but last week bowed out of the bidding process.

“This is an exciting new chapter for Discovery,” said David Zaslav, president and CEO of Discovery Communications. “Scripps is one of the best-run media companies in the world with terrific assets, strong brands and popular talent and formats. Our business is about great storytelling, authentic characters and passionate super fans. We believe that by coming together with Scripps, we will create a stronger, more flexible and more dynamic media company with a global content engine that can be fully optimized and monetized across our combined networks, products and services in every country around the world.”

“Through the passion and dedication of our incredible employees, and with the support of the Scripps family, we have built a lifestyle content company that touches the lives of consumers every single day,” said Kenneth Lowe, chairman, president & CEO of Scripps. “This agreement with Discovery presents an unmatched opportunity for Scripps to grow its leading lifestyle brands across the world and on new and emerging channels including short-form, direct-to-consumer and streaming platforms.”

Discovery and Scripps said the combined company “will offer a complementary and dynamic suite of brands” and produce approximately 8,000 hours of original programming annually, be home to approximately 300,000 hours of library content and will generate a combined 7 billion short-form video streams monthly, “demonstrating its commitment to delivering content as a top short-form provider.”

Discovery and Scripps said that together they will also have a nearly 20 percent share of advertising-supported pay TV audiences in the U.S. The merged entity will operate five of the top pay TV networks for women and will account for over a 20 percent share of women watching primetime pay TV in the U.S., they said.

Wall Street has been mixed on a deal amid recent chatter Scripps could be sold to Discovery or Viacom. While bulls have highlighted that any combination of Scripps, Discovery and Viacom would give the enlarged entity more power in carriage talks with pay TV operators, bears have said a deal means a double-down on a challenged business amid cord cutting and ratings challenges.

“Although we still don’t believe that either combination solves the long-term affiliate fee ‘issue,’ our math at least suggests that Discovery would be the better buyer of Scripps – both from a pro forma leverage and an accretion standpoint,” Wells Fargo analyst Marci Ryvicker wrote in a recent report.

“We view the deal as among the most logical in media,” RBC Capital Markets analyst Steven Cahall said in a recent report about a potential Discovery-Scripps combination. “Both are somewhat relatively sub-scale when dealing with distributors, and while their combination may not put them on equal footing with a broadcast network or major sports rights owner, scale matters and should improve network carriage and affiliate negotiations.”

Among recent deals among pay TV distributors and challenges to traditional TV networks, he also highlighted: “Investors have viewed consolidation among smaller players as an eventual inevitability.”

Discovery, “perhaps the best cost manager in media,” according to Cahall, was expected to look for cost synergies, both in overhead and programming, and possible revenue synergies.

Other opportunities for the combined firm are international growth. “Scripps is in the early innings of establishing an international distribution footprint,” while Discovery “has a massive international platform with an average of more than 10 networks in well over 100 countries,” said Cahall.

MoffettNathanson analyst Michael Nathanson in a recent report was less bullish on a deal. “While there will likely be ample cost synergies, international revenue opportunities and improved relative scale, we don’t think this merger will fundamentally alter the long-term prospects of these companies,” he said.

 


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