Discovery Communications Agrees to Buy Scripps Networks -- 2nd Update
Discovery Communications Inc. has agreed to acquire Scripps Networks Interactive Inc. in a deal valued at about $11.9 billion, combining two powerhouses of nonfiction television programming at a time of major upheaval in the cable-TV business.
Under the terms of the deal, announced Monday morning, Scripps shareholders will receive $90 a share, $63 of which will be in cash and $27 a share in Class C Common shares of Discovery stock. The price is a 34% premium to its unaffected share price as of July 18, before The Wall Street Journal reported that the companies were in talks.
Including Scripps's debt, the deal is valued at a total of $14.6 billion.
After closing, Scripps' shareholders will own about 20% of Discovery's fully diluted common shares and Discovery shareholders will own approximately 80%.
Discovery, which owns networks including Discovery Channel, Animal Planet and TLC, will expand its portfolio with the addition of Scripps-operated HGTV, Cooking Channel and Food Network.
The tie-up is a bet that bigger is better as the television industry is upended by cord-cutting and the rise of "skinny" online TV bundles from the likes of Hulu, YouTube, Sling TV and others. The thinking is that a broader portfolio of channels that specialize in nonfiction and lifestyle programming like travel, food and nature could appeal to younger viewers and give the combined company a leg up in negotiations with advertisers and programming distributors.
According to Discovery, the combined company will produce about 8,000 hours of original programming a year and have a library of 300,000 hours of content.
The deal will create a must-buy network group for advertisers interested in targeting women and help the network command more premium ad rates. Of the top 20 U.S. cable networks, the merged company will control four of the top five with the highest percentage of female viewers -- TLC, HGTV, Investigation Discovery and Food Network, according to Nielsen data.
The overlap in nonfiction programming -- think "Shark Week" and "Say Yes to the Dress" plus "House Hunters" and "Diners, Drive-Ins and Dives" -- could even put Discovery and Scripps in a position to offer their own niche subscription web-TV bundle.
Discovery said it would be able to expand Scripps's channels into more overseas markets, which could help generate significant additional revenue.
The deal could put pressure on other media companies, from AMC Networks to Viacom Inc., that must defend their turf on the cable dial. They are perceived to be the most vulnerable to industry changes, because they aren't part of big conglomerates that own broadcast or sports networks -- which are seen as the hardest for cable distributors to drop. With Scripps off the market, there is one less potential partner for them to join forces with in the battles ahead.
Viacom had also been in talks with Scripps, but Scripps decided to negotiate exclusively with Discovery after reviewing the bids from both companies, according to people familiar with the matter.
The deal will lift the profile of Discovery's 57-year-old chief executive, David Zaslav, who had a roughly two decade career at NBC before joining Discovery in 2007. He has overseen the heyday of over-the-top reality TV -- shows like "Honey Boo Boo" and "Naked and Afraid" -- and a more recent transition at the flagship channel to emphasize the science shows and documentaries that are the company's roots.
He has launched new channels, including crime-focused Investigation Discovery. And he has been as aggressive as any media CEO in international expansion; the operations outside the U.S. accounted for 47% of the company's $6.5 billion in total revenue last year.
In the U.S., Mr. Zaslav will have the twin challenges of persuading cable providers and new digital TV services to carry as many Discovery and Scripps channels as possible, and pay higher fees.
The deal is expected to close by early 2018, pending approval by shareholders of both companies and regulators.
Mr. Zaslav is a close associate of John Malone, the cable mogul who owns a nearly one-third voting stake in Discovery and sits on its board. Under the terms of a succession plan reached in 2014, Mr. Zaslav has the right of first refusal to purchase Mr. Malone's stake should he ever sell it and will have the right to vote that stake "in the event Mr. Malone is not voting the shares."
The sale to Discovery will end more than two decades of family control over the Scripps cable networks. The root of the Scripps Networks business got its start in 1994, when now-CEO Ken Lowe created HGTV within E.W. Scripps Co., a newspaper company and later local TV station owner founded in 1878 by Edward Willis Scripps. Scripps Networks was split off from E.W. Scripps in 2008, and investors have been speculating about a takeover ever since.
The family, which collectively controls 91.8% of Scripps voting shares, entered into an agreement to vote in favor of the deal, as did Mr. Malone and the Newhouse family, which is also a major Discovery shareholder.
Mr. Lowe, who was already planning to step down as CEO in 2019, is expected to join Discovery's board after the deal closes.
"This agreement with Discovery presents 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," Mr. Lowe said in the release.
Write to Joe Flint at firstname.lastname@example.org and Sarah Rabil at Sarah.Rabil@wsj.com
(END) Dow Jones Newswires
July 31, 2017 08:03 ET (12:03 GMT)