Discovery Clinches Scripps Networks Deal

Discovery Communications has bought Scripps Networks Interactive. owner of HGTV and the Food Network. Andrew Harrer  Bloomberg

The deal will bring Scripps' lifestyle channels like HGTV, Food Network and the Travel Channel under Discovery, which now boasts Animal Planet and the Discovery Channel.

The tie-up is expected to deliver $350m of cost savings with the aim of providing a boost to both earnings per share and cash flow within the first year.

Scripps stock was trading at about $67 per share before the deal talks were reported in the press.

The Discovery Communications cable deal rests on some rosy assumptions. LS Investment Advisors LLC now owns 9,084 shares of the company's stock valued at $235,000 after buying an additional 484 shares during the last quarter.

For the second quarter, Discovery U.S. networks' revenues rose to $890 million - with a 4% increase in distribution fees to $400 million and advertising revenues unchanged at $472 million. Nielsen's data cited by The WSJ, however, puts TLC, HGTV, Discovery ID, and Food Network at the top, along with Disney, as the most female-skewing cable channels across the top 20 networks in the U.S. (NASDAQ: AMZN) and Netflix, Inc. The telcos are scrambling to offer live TV streaming bundles in an effort to shore up pay TV subscriber losses, while the networks that had once relied on pay TV distribution to reach viewers are now having to negotiate new packages with the streaming services like Sling TV, Hulu, Sony's Vue, YouTube TV and others.

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"The transaction supports and accelerates Discovery's pivot from a linear TV-only company to a leading content provider across all screens and services around the world", David Zaslav, Discovery's chief executive, told investors. The strength of the combined company would improve its position in negotiations with cable and other distributors when contracts come up for renewal. The total price of the deal, including debt, is $14.6 billion.

Discovery and Scripps have pursued a similar strategy of owning, not just licensing, the shows on their channels.

Scripps has been considered a takeover target since the Scripps family trust, which controlled the company, was dissolved five years ago.

The deal "future proofs our brands on a global basis", Scripps chairman Kenneth W. Lowe said. The deal still requires regulatory and shareholder approvals. The takeover is expected to close by early 2018. It had tried unsuccessfully twice before to buy Scripps.

Guggenheim and Goldman Sachs advised Discovery, and they'll split the vast majority of about $45 million in fees, according to Jeffrey Nassof, director of consulting firm Freeman & Co.

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