Scripps Networks, the media conglomerate that operates HGTV, the Travel Channel, Food Network, and other channels; and Discovery, which runs The Discovery Channel, Animal Planet, TLC, etc., have arrived at a $14.6 billion merger deal, Georg Szalai of The Hollywood Reporter reports. The companies believe the merger, which is expected to solidify in early 2018, will facilitate “significant cost synergies,” to the tune of $350 million in savings, and provide new opportunities for digital and direct to consumer sales.
The merger will also help Scripps to reach an international audience “through Discovery’s best-in-class global distribution, sales and languaging infrastructure,” the companies said in a statement.
“This agreement with Discovery,” said Scripps CEO Kenneth Lowe, “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.”
The combined company will “offer a complementary and dynamic suite of brands,” including 8,000 hours per year of digital programming and 7 billion “short-form video streams.”
Moreover, ”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,” according to the companies’ statement.
The merged entity will control roughly 20% of America’s pay TV market. Both Scripps and Discovery cater to women, and the new company will account for about 20% of women watching primetime pay TV in the US.
Discovery Channel will buyout Scripps for $90/share: $63 in cash and $27 worth of stock in the merged company. Scripps shareholders will own about 20% of Discovery, and Lowe will likely join Discovery’s board.
When rumors of a possible merger broke in mid July, Scripps’ shares were valued at $67.02 a piece. Since July 18, the stock has climbed more than 34%. Today, as you would expect, Scripps’ shares are valued at just under $90 ($87.50 to be exact, as of 1:00 Eastern Monday).
Viacom, which owns CMT, MTV, BET, Nickelodeon, and Spike, just to name a few, was also reportedly pursuing a takeover of Scripps, Joe Flint of Fox Business wrote a week ago. Scripps stock soared on rumors of that merger as well.
Wells Fargo analyst Marci Ryvicker believes the Scripp-Discovery deal was more advantageous for Scripp than the potential Viacom one, but adds that the merger by no means solves all the companies’ problems.
“Although we still don’t believe that either combination [Discovery-Scripps or Viacom-Scripps] solves the long-term affiliate fee ‘issue,’ our math at least suggests that Discovery would be the better buyer of Scripps — both from a pro forma leverage and an accretion standpoint,” Ryvicker said.
Analysts are split on whether the merger was prudent. Steven Cahall of RBC Capital Markets called the deal one of “the most logical in media.”
“Both [Discovery and Scripps] are somewhat relatively sub-scale when dealing with distributors, and while their combination may not put them on equal footing with a broadcast network or major sports rights owner, scale matters and should improve network carriage and affiliate negotiations,” Cahall said.
Indeed, the companies have said they hope the merger will “create a new scale player with a strong ability to compete for audiences and ad dollars.”
Analyst Michael Nathanson of MoffettNathonson agrees that the merger will create “improved relative scale,” and further concedes that it will “likely” lead to “ample cost synergies” and “international revenue opportunities.” Still, he does not “think this merger will fundamentally alter the long-term prospects of these companies.”
The companies themselves, though, are still on their honeymoon.
“This is an exciting new chapter for Discovery,” said David Zaslav, president and CEO of Discovery Communications. “Scripps is one of the best-run media companies in the world with terrific assets, strong brands and popular talent and formats.”