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The Journal Gazette

Monday, July 31, 2017 1:50 pm

Discovery to buy Scripps in a $14.6 billion deal

Thomas Heath | Washington Post

 

Discovery Communications Monday announced it has agreed to buy Scripps Networks Interactive in a $14.6 billion deal that creates a lifestyle programming engine with a global reach as cable companies navigate a disrupted media environment.

Scripps shares were up close to 1 percent in early trading while Silver Spring,Md.-based Discovery were down about 6 percent.

The deal called for Scripps shareholders to receive $90 a share, or about $11.9 billion, a 34 percent premium above where Scripps stock was valued when the talks were first reported nearly two weeks ago.

The $90 per share price includes $63 in cash and $27 a share in Class C Common shares of Discovery stock. Scripps' debt is included in the deal, which brings its value to $14.6 billion.

Analysts had been generally positive about a merger since the news of talks first leaked. Several saw it as a smart move because the companies need the scale and digital chops to negotiate with distributors in today's fast-moving media world.

The deal "future proofs our brands on a global basis," Scripps chairman Kenneth W. Lowe said. He called the agreement "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."

It's a combination that promises something for everyone.

Discovery is known for its testosterone-driven, over-the-top programming such as Shark Week, which this year included a race between Olympian Michael Phelps and a great white, and its man-vs.-nature shows such as "Deadliest Catch" and "Bering Sea Gold," about prospecting for gold in the frigid waters off Alaska.

Scripps Networks offers a portfolio of shows that appeal to the lucrative female demographic, including those in the do-it-yourself genre featured on the Food Network, HGTV, the Travel Channel and the Cooking Channel.

Discovery is also known for its rigid cost discipline and massive international footprint - 2.8 billion viewers in 200 countries and 40 languages - that would complement Scripps Networks' nascent global distribution.

"When you put us together we are about 20 percent viewership on cable," said Discovery chief executive David Zaslav, one of the highest-paid public company executives. "As people are choosing content to put on a platform, our content together way over delivers."

"While cost synergies are pretty obvious to us, we continue to believe the most compelling industrial logic is from international distribution," RBC Capital Markets analys Steven Cahall said in a July 28th note.

Discovery could launch "ad-supported networks with [Scripps] content in dozens of international markets," Cahall said. "We think $3 [million] to $10 million in annual revenue per network is not unreasonable."

Finally, Cahall said the combined company would create leverage with distributors that would be an improvement "versus where the companies sit currently."

Discovery has a market capitalization of $11.4 billion. It has more than $6 billion in annual sales and 7,000 employees.

Both companies have strong balance sheets. Each produces net profit margins in the high teens, with Discovery earning a net profit of $1.2 billion last year. Scripps Networks' net profit was $673 million. It has 3,600 employees. Its shares have been on a tear in recent years, nearly doubling since pre-financial-crisis days.

Scripps Networks Interactive was spun out of the longtime Cincinnati-based newspaper chain and media service E.W. Scripps Co. in 2008.

Advance Publications, the privately held media company owned by the Newhouse family, owns a large share of Discovery stock.