NEW YORK: Discovery Communications, Inc. and Scripps Networks Interactive, Inc. Monday announced that they have signed a definitive agreement for Discovery to acquire Scripps in a cash-and-stock transaction valued at $14.6 billion, or $90 per share, based on Discovery’s Friday, July 21 closing price.
The purchase price represents a premium of 34% to Scripps’ unaffected share price as of Tuesday, July 18, 2017. The transaction is expected to close by early 2018.
The merger is expected to create cost synergies estimated at approximately $350 million, the companies jointly stated. However, Reuters reports that many analysts have questioned how the combined company would compete long term as viewers cut cords to cable providers and as advertising and ratings decline.
The acquisition, which was completed Sunday night and announced on Monday, brings together Scripps' largely female audience of lifestyle channels such as HGTV, Travel Channel and Food Network with Discovery's Animal Planet and Discovery Channel, which primarily has male viewers.
“This is an exciting new chapter for Discovery. Scripps is one of the best run media companies in the world with terrific assets, strong brands and popular talent and formats. Our business is about great storytelling, authentic characters and passionate super fans. 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, president and CEO, Discovery Communications.
“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,” said Kenneth W Lowe, chairman, president & CEO, Scripps Networks Interactive.
The combined company will produce approximately 8,000 hours of original programming annually, be home to approximately 300,000 hours of library content, and will generate a combined 7 billion short-form video streams monthly.
Combined, Discovery and Scripps will have nearly 20% share of ad-supported pay-TV audiences in the US, an officla release asserts. Additionally, the combined company will be home to five of the top pay-TV networks for women and will account for over 20% share of women watching primetime pay-TV in the U.S.
The combined portfolio’s brands will include:
Discovery: Discovery Channel, TLC, Investigation Discovery, Animal Planet, Science and Turbo/Velocity, as well as OWN in the U.S., Discovery Kids in Latin America, and Eurosport.
Scripps: HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel and Great American Country, as well as TVN, a premiere multi-platform provider of entertainment, lifestyle and news content in Poland; UKTV, an independent commercial joint venture with BBC Worldwide; Asian Food Channel; and lifestyle channel Fine Living Network.
International growth opportunities
The combination will extend Scripps’ brands, programming and talent to a broader international audience through Discovery’s global distribution, sales and languaging infrastructure. Discovery sees strong opportunities to strengthen its existing global female networks with select content from Food Network, HGTV and all the Scripps brands. Scripps also has a strong position in key international growth markets, including the UK and Poland, and will help fuel Discovery’s existing content pipeline in growth areas like Discovery’s Home and Health network in Latin America.
Social, mobile and non-linear growth opportunities
The combined company will deliver 7 billion monthly short-form streams, bringing together Scripps’ established expertise in short-form video creation with Discovery’s investment in Group Nine Media to create a new scale player with a strong ability to compete for audiences and ad dollars. The combination will give Discovery an outstanding presence on new video and social media platforms. Additionally, Scripps Lifestyle Studios will become a key component of Discovery’s content engine, making the company a leader in key strategic areas such as data-driven ad sales, endemic advertising, and branded entertainment solutions.
Discovery’s added scale, content engine and multiple brand offerings will present a compelling opportunity for new digital distribution partners, including mobile, OTT, and direct-to-consumer platforms and offerings, the release further states.
The purchase price implies a total transaction value of $14.6 billion, including the assumption of Scripps’ net debt of approximately $2.7 billion. Post-closing, Scripps’ shareholders will own approximately 20% of Discovery’s fully diluted common shares and Discovery’s shareholders will own approximately 80%.
The cash portion of the purchase price will be financed with a combination of new debt and cash on hand. Discovery has secured fully committed financing from affiliates of Goldman Sachs & Co. LLC to fund the acquisition. Discovery expects to maintain investment grade ratings throughout this transaction. As part of its commitment to de-lever its balance sheet, Discovery intends to suspend its share repurchase program until such time as its credit metrics are in line with its rating. Specifically, Discovery expects to be below 3.5x gross debt to AOIBDA within the first two years after the transaction closes, using substantially all free cash flow to reduce pre-payable and/or short term debt.
Lowe is expected to join Discovery’s board of directors following the close of the transaction.
The transaction is subject to approval by Discovery and Scripps’ shareholders, regulatory approvals, and other customary closing conditions.
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