Discovery to acquire Scripps Interactive
On July 31, 2017, Discovery Communications (DISCA) announced the acquisition of Scripps Networks Interactive (SNI) for $14.6 billion, or $90 per share. Discovery Communications’ purchase price represented a premium of 34% to Scripps’s share price on July 18. Discovery Communications expects to close the acquisition in early 2018.
Discovery Communications’ stock price closed at $24.38 on August 1. The company’s stock price has fallen 9% since the announcement of its fiscal 2Q17 results and the acquisition of Scripps Networks Interactive. In contrast, Scripps’s stock price has risen 0.8% since the announcement of the acquisition. Viacom (VIAB) had initially put in a bid for Scripps Networks but backed out.
Rationale behind Discovery’s acquisition of Scripps
Discovery Communications’ proposed acquisition of Scripps comes among a changing landscape in the media industry. As pay-TV providers like Dish Network (DISH) continue to lose pay-TV subscribers, programming companies like Discovery Communications are finding it increasingly difficult to negotiate higher affiliate fees for its programming.
As pay-TV operators lose subscribers, they are increasingly reluctant to pay higher affiliate fees per subscriber. Pay-TV companies like Charter Communications (CHTR) are also looking at skinny bundles without sports packages that would reduce the cost to subscribers. This has forced media companies like Discovery Communications to take a closer look at its programming portfolio.
Discovery Communications expects that its proposed acquisition of Scripps would result in the combined company having a market share of 20% when it comes to ad-supported pay-TV viewers in the United States (SPY). The company stated that after its acquisition of Scripps, it would have access to the top five television networks for women. It would have a 20% viewing share of women who watch prime-time television in the United States.