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Discovery to Acquire Scripps Networks Interactive for $11.9 Billion

Discovery Communications has reached an agreement to acquire Scripps Networks for approximately $11.9 billion in a major consolidation of cable television networks amid a sea change in the way viewers consume entertainment.

The deal will give the combined company control of approximately one-fifth of all ad-supported pay TV in the United States. And the merger also positions the combined company’s channels for greater inclusion on traditional pay-TV networks, as well as burgeoning online TV offerings such as DirecTV Now and Sling TV.

Discovery networks include Discovery Channel, TLC, Animal Planet and Oprah Winfrey Network. Scripps’ programming includes HGTV, The Food Network and Travel Channel.

Drew and Jonathan Scott take a selfie on the St. Charles Avenue streetcar line in

Cable mogul John Malone, a major Discovery shareholder, and Scripps family shareholders backed the deal.

The tie-up follows a bidding war between Discovery and Viacom, owner of BET, Comedy Central, Nickelodeon and Paramount Pictures. Viacom reportedly dropped its bid on Scripps earlier this month after the price escalated.

Discovery and Scripps boast that, combined, they operate five of the Discovery Channel’s top women’s networks, Investigation Discovery, TLC, Food Network and HGTV. Discovery “sees strong opportunities” to expand Food Network and HGTV’s audience globally.

The company said it also hopes to bolster its short-form video offerings on social media, as the cable TV industry grapples with viewers cutting the cord and gradually migrating to alternative sources, such as than Netflix and online outlets.

The marriage should give US consumers more ways to see Discovery and Scripps programming, though much of the deal is focused on international growth.

With its broader channel portfolio, Discovery can now better negotiate its position on cable TV networks and internet-streamed TV packages such as DirecTV Now, Hulu, Sling TV, PlayStation Vue and YouTube TV.

Currently, Discovery only has channels on Sony’s PlayStation Vue and DirecTV Now, while Scripps has a presence on those as well as Sling TV and Hulu. Their channel portfolio could also be packaged as an entertainment-only “skinny” bundle, sold directly to broadband homes and wireless customers.

“This transaction supports and accelerates Discovery’s transformation from a linear television-only company to a leading provider of content, across all screens and services around the world,” Discovery CEO David Zaslav said during the talk. a conference call discussing the deal.

Together, Discovery and Scripps produce 8,000 hours of original programming a year across their 50 channels.

Combining Discovery with “Scripps’ world-class portfolio of high-quality, deeply-loved brands,” Zaslav said, will create “a new global leader in real entertainment.”

“We think it gives us a huge content engine,” Zaslav said. “We now have some of the biggest quality brands with super fans here in the United States. Any entertainment package, we’d be in the right place.”

In an unstable television environment, the deal with Discovery improves Scripps’ position and gives the network “an unparalleled opportunity to grow Scripps’ leading lifestyle brands such as HGTV, Food Network and Travel Channel around the world and on new and emerging social and mobile platforms,” ​​said Scripps Chairman and CEO Ken Lowe.

“Together, without a doubt, we will be a more innovative company,” Lowe said. “It really future-proofs our brands globally.”

Michale Nathanson, analyst at MoffettNathanson was not so optimistic. While the deal makes sense in the current climate of cable and media consolidation, “we don’t believe this merger will fundamentally change the long-term prospects of these companies,” he said in a note Monday. to investors. He maintained a sell rating on Discovery shares and changed the recommendation on Scripps shares from Sell to Neutral.

The discovery is disputed because it already had too many networks “to protect in this new world,” Nathanson said. But the deal gives Discovery “a surprisingly compelling opportunity” to create a package of non-sports channel programming under $15 a month.

RBC Capital Markets analyst Steven Cahall said the combination would produce “obvious” cost synergies, but the prospects for additional international distribution and webcast TV provide “the most compelling industry logic.” “for the deal. Discovery could launch new networks with Food Networks, HGTV and other Scripps channels and earn up to $10 million in revenue a year, it said in a note to investors on Friday.

The total value of the agreement is $14.6 billion, which includes the assumption of $2.7 billion in debt. Discovery will pay the equivalent of $90 per share in cash and stock for the Scripps shares.

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It’s a costly move for Discovery, which said it will temporarily end its post-acquisition share buyback program until it has better credit standing.

Separately, on Monday, Discovery said its second-quarter revenue rose 2% to $1.7 billion, while its net profit fell 8% to $374 million.

Discovery (DISCA) fell more than 8% to $24.43, while shares of Scripps (SNI) edged higher to $87.54.

Follow USA TODAY reporters Nathan Bomey and Mike Snider on Twitter @NathanBomey & @mikesnider.