Discovery buying Scripps Networks in $14.6B deal

8/4/2017

Discovery Communications is buying Knoxville-based Scripps Networks Interactive, both companies announced. The $14.6 billion purchase is expected to close in early 2018.

Within two years, the deal is expected to produce $350 million in savings over two years, though what that means for Scripps employees is unclear. Scripps Networks employs about 3,500 worldwide, with just over 1,000 in the Knoxville area.

The combined company will put Discovery’s Group Nine Media together with Scripps to offer 7 billion short online streams a month, according to the announcement.

“The combination will give Discovery an outstanding presence on new video and social media platforms,” the news release said.

According to a previous report by Kiplinger, Scripps produces 2,500 hours of content annually for $550 million, which is less than half what Discovery spends to create the same.

"Opportunity to expand"

In a presentation for investors, Discovery executives described the deal as an “untapped opportunity to expand Scripps’ brands globally on an efficient basis.”

In the merger agreement, filed July 30 with the Securities and Exchange Commission, Discovery and Scripps agreed to make no major changes in the few months until the merger is complete. In a related SEC filing from Discovery, a few more indications emerge. Through the end of 2018, pay will not decrease for affected employees, the filing says; through 2019, the company will consider employees for participation in its long-term equity incentive program. During the same period, employees will get pension and other benefits “substantially comparable in the aggregate” to those held before.

On the second anniversary of the merger’s completion, any severance benefits will equal what employees could’ve expected currently, the document says.

"Scripps is one of the best run media companies in the world with terrific assets, strong brands and popular talent and formats, Discovery CEO David Zaslav said in the announcement. “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.”

Cutting the cord

With customers dropping cable plans for streaming services, the cable industry is moving toward “skinny bundles” of channels customers choose individually. But as the market becomes more online-oriented, cable TV networks also seek inroads into internet video and social media.

Discovery is in the midst of a “pivot” from cable TV to being a content provider on all platforms, Zaslav said during an investors’ call.

The combined company will put Discovery’s Group Nine Media together with Scripps to offer 7 billion short-form streams a month, according to the announcement.

“The combination will give Discovery an outstanding presence on new video and social media platforms,” the news release said.

In late June, Scripps announced it was taking on young social media personalities under the name Scripps Lifestyle Studios. That arm of the company launched in 2015; the new contributors are called Scripps Lifestyle Experts, and many have already appeared on the network’s shows and corporate social media.

The merger will greatly expand Discovery’s offerings aimed at women and cooking enthusiasts. According to Discovery’s news release, it will have more than 20 percent of the women watching primetime TV in the U.S.

The companies say that together they will produce about 8,000 hours a year of original programming, and have a library of 300,000 hours.

The purchase still must be approved by federal antitrust regulators. Assuming the deal closes, Scripps Networks President and CEO Ken Lowe is expected to join Discovery’s board.

Details of the deal

The agreement offers $90 per share of Scripps stock: $63 in cash, and $27 in Discovery stock based on the July 21 closing price. Ultimately Scripps shareholders will own 20 percent of the combined company, and Discovery shareholders 80 percent, according to the presentation for investors.

The deal includes Discovery’s assumption of Scripps’ $2.7 billion debt. Purchase will be financed by a mix of borrowing and cash on hand, according to Discovery.

In a letter accompanying the SEC filing, Goldman Sachs Bank offers up to $9.6 billion for the purchase.

Discovery and Scripps Networks both released their second-quarter financial results on the same day as the merger announcement. Discovery’s second-quarter revenue was up 2 percent to $1.745 billion from the same period the previous year, but profitability was down 8 percent. Scripps Networks’ second-quarter operating revenue was $925 million, up 3.6 percent over the same period the previous year. Ad revenue was up 2.5 percent and distribution revenue up 7.3 percent.

Scripps expects its 2017 revenue to grow about 4 percent, downgraded from a previous estimate of 6 percent. Due to the cost of increased programming and other factors, the company expects segment profit to be flat for the year, down from a projection of 3 percent.

The sale of Scripps Networks has been discussed for some time, and Discovery was not the only suitor. Last week Viacom, said to be considering an all-cash offer, dropped out. Scripps stock jumped 19 percent on rumors of a purchase by Discovery, which is based in Silver Spring, Maryland.

The Scripps family, which controls voting stock of Scripps Networks Interactive, met last week to discuss offers; it was at least the third consideration of a merger with Discovery, controlled by billionaire "cable cowboy" John Malone.

The E.W. Scripps Co., former owner of the News Sentinel and owner of a group of Knoxville radio stations, created Scripps Networks. In 1994 Scripps Networks came to Knoxville with its purchase of Cinetel Productions. That same year the company launched its premier channel, HGTV. E.W. Scripps spun off Scripps Networks as a separate company in 2008.

Discovery Communications owns the Discovery Channel, TLC, Investigation Discovery, Animal Planet, Science and Turbo/Velocity, OWN: Oprah Winfrey Network in the U.S., Discovery Kids in Latin America, and Eurosport. It reaches 3 billion viewers who watch 54 billion hours of Discovery content annually, according to the company. Discovery has been moving beyond traditional TV into digital products, streaming services, social media and virtual reality.

Scripps Networks owns HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel, and Great American Country; international ventures TVN, UKTV, Asian Food Channel, and Fine Living Network. Its channels and websites reach “millions of consumers across North and South America, Asia-Pacific, Europe, the Middle East and Africa,” according to the company.

Source: Knoxville News Sentinel

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