Discovery Communications Inc. has agreed to acquire Scripps Networks Interactive Inc. for $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 the level where Scripps shares were trading 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.
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. A bigger portfolio of channels focused on travel, food and nature could appeal to younger viewers, the thinking goes, and give the combined company an edge in negotiations with advertisers and programming distributors.
The overlap in nonfiction programming -- think "Shark Week" and "Say Yes to the Dress" plus "House Hunters" and "Diners, Drive-Ins and Dives" -- also puts Discovery and Scripps in a position to offer their own web-TV bundle directly to consumers.
The two companies account for 13% of overall cable viewership but receive just 7% of the monthly cable fees consumers pay, according to RBC Capital Markets.
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.
Discovery said it would be able to expand Scripps's channels into more overseas markets, which could help generate significant additional revenue. The combined company is also touting its short-form video production, which will help it gain more viewers and ad dollars on social-media platforms.
"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," said David Zaslav, chief executive of Discovery, in announcing the deal.
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.
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 Mr. Zaslav, who had a roughly two-decade career at NBC before joining Discovery in 2007. He has led a transition of Discovery from being primarily known for its serious educational fare to a mix of documentary-style programming and over-the-top reality TV -- shows like "Honey Boo Boo" and "Naked and Afraid." Lately, the pendulum at the company has swung back to more of an emphasis on content with higher aspirations.
He has launched new channels, including crime-focused Investigation Discovery, which has become a huge hit with female viewers. And he has been as aggressive as any media CEO in international expansion: Operations outside the U.S. accounted for 47% of the company's $6.5 billion in total revenue last year.
The companies announced disappointing earnings simultaneously with the deal news. That prompted Marci Ryvicker, an analyst at Wells Fargo, to put out a note titled: "Well, Good Thing They're Combining Because Q2 Results Were Underwhelming."
Discovery said second-quarter revenue rose 2% to $1.75 billion, shy of analysts' estimates. Scripps lowered its revenue guidance and reported second-quarter U.S. advertising sales growth of 2.2%, which also fell short of expectations.
The deal is expected to close by early 2018, pending approval by shareholders 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.
Mr. Malone, who has significant interests in companies from Liberty Media Corp. to Charter Communications Inc., has been a driving force in M&A and has talked up the need for small players in the content world to merge, particularly as cable and broadband providers have gone through their own wave of big deals.
Charter acquired Time Warner Cable in 2016. AT&T Inc. agreed last year to buy Time Warner Inc.
Mr. Zaslav didn't rule out other deals. "We're not out of bullets. We still have some room to do some selective purchases," he said.
The sale to Discovery will end more than two decades of family control over the Scripps cable networks. Scripps Networks business got its start in 1994, when now-CEO Ken Lowe created HGTV within the 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.
Discovery is securing a purchase of Scripps after more than one failed attempt over the last decade. Three years ago, talks between the two companies broke down, in part because the Scripps family didn't appear ready to sell.
Talks between the two companies heated up again earlier this summer. Discovery had been carrying some Scripps content on one of its Latin American properties and the strong ratings performance persuaded Mr. Zaslav it might be time to take another run at the company, he said.
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.
After closing, Scripps shareholders will own about 20% of Discovery's shares and Discovery investors will own 80%. The acquisition is expected to create about $350 million in cost synergies and add to adjusted earnings in the first year, Discovery said.
Discovery shares fell 6.5% to $25.05 in morning trading, while Scripps rose 0.8% to $87.61.
Mr. Lowe, who was already planning to step down as CEO in 2019, is expected to join Discovery's board.
Write to Joe Flint at firstname.lastname@example.org and Sarah Rabil at Sarah.Rabil@wsj.com
(END) Dow Jones Newswires
July 31, 2017 11:30 ET (15:30 GMT)