Discovery aims for content clout with Scripps Network bid

Tammy Harvey
August 1, 2017

Discovery Communications reported its second-quarter 2017 earnings on Monday, immediately following news that the multi-cable channel home had agreed to buy Scripps Networks for $14.6 billion.

Internationally, the expanded group will own Discovery Kids in Latin America, the Eurosport group, pan-regional net Asian Food Channel, Polish commercial net TVN and half-ownership of UKTV in the UK. The companies expect $350 million in total cost synergies from the merger. The stock ended last trade at $86.91 a share and the price is up more than 21.77% so far this year.

Discovery is paying 70 percent cash and 30 percent stock for Scripps.

Reports of a possible merger started circulating earlier this month, pushing up share values of both companies.

"While we believe the two companies are likely better positioned together, rather than apart, the longer-term issues facing the industry still remain", noted analyst John Janedis of Jefferies. The firm's revenue for the quarter was up 2.2% compared to the same quarter previous year. Company fiscal year is ending in December and analysts' consensus recommendation is Outperform for DVAX and estimated EPS for next quarter is $ -0.41.

Though Scripps is smaller, it has HGTV, which was the fourth-most watched US network in prime time in 2017. There is also increased competition for viewers from streaming services such as Netflix Inc and Inc.

"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 channels account for 13.2 percent of cable viewership but only 7 percent of monthly cable fees, reports The WSJ.

Discovery and Scripps are also grappling with changing models of distribution, as cable companies respond to falling subscriber numbers with their own online platforms and less expensive packages with fewer channels.

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

Scripps CEO Kenneth Lowe will join the Discovery board. The deal still requires regulatory and shareholder approvals. Gabelli reaffirmed a "buy" rating on shares of Scripps Networks Interactive in a research note on Thursday, July 27th. Viacom also pursued Scripps but backed out of the bidding war last week.

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.

Other reports by Ligue1talk

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