Why Scripps Networks Interactive, Inc. Stock Popped Today

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What happened

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Shares of Scripps Networks Interactive, Inc. (NASDAQ: SNI) were surging today on news that the media company was seeking to merge with Discovery Communications Inc. (NASDAQ: DISCA)

As of 11:46 a.m. EDT, Scripps shares were up 13.8% while Discovery had gained 4.4%.

So what 

The talks between the two cable companies come three years after a plan to combine fell apart, according to Reuters, which first reported the news. 

Scripps owns HGTV, Travel Channel, and a majority of the Food Network, which would fit well with Discovery's family of channels, which include Animal Planet and TLC. Terms of a potential deal are unknown, but the spike in Scripps shares seems to indicate investor thirst for such a deal. As competition from Netflix and other internet TV options has risen, cable viewership has fallen, making consolidation more desirable. Small companies like Scripps would be better as part of a larger media organization.

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Now what

Discovery is the larger of the two companies with a market cap of $16 billion compared to Scripps at around $10 billion after today's jump. Considering that a potential deal fell apart once before, there's no guarantee that the two sides will reach an agreement, but it's clear that Scripps is seeking a merger and acquisition deal as the company also held talks with Viacom (NASDAQ: VIA).

That's a sign that Scripps could be headed for a bidding war if both parties are interested. Expect volatility from the stock as more news comes out on a potential deal.

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Jeremy Bowman owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. The Motley Fool recommends Scripps Networks Interactive. The Motley Fool has a disclosure policy.