Viacom Out of the Running for Scripps Networks -- Update
July 26 2017 - 9:16PM
Dow Jones News
By Amol Sharma and Joe Flint
Viacom Inc. is out of the running to acquire Scripps Networks
Interactive Inc., leaving Discovery Communications Inc. as the only
remaining suitor in talks to purchase the cable TV programmer,
people familiar with the situation said.
com, owner of cable TV networks including MTV and Comedy
Central, saw promise in combining its youth-skewing networks with
Scripps channels like HGTV and Food Network that specialize in
nonfiction and lifestyle programming.
But the media company faced financial constraints and didn't
want to overpay for the asset, one of the people familiar with the
situation said. Scripps has a market value of almost $11
billion.
After reviewing bids from both companies, Scripps determined it
would prefer to negotiate exclusively with Discovery, the people
familiar with the situation said.
A deal would have been a significant pivot by Viacom's
relatively new chief executive, Bob Bakish, who in his first months
on the job has been focused on stabilizing the company's balance
sheet, turning around film operations and emphasizing a set of core
cable networks.
Doubling down on the cable TV business would have been viewed as
a surprising move by many on Wall Street.
Viacom had more than $12 billion in debt as of March 31 and is
clinging to the lowest-level of investment-grade credit rating,
according to Moody's Investors Service, meaning that a deal
involving a substantial amount of cash would have risked a
downgrade to junk.
The value of Discovery's offer wasn't clear, but it involves a
mix of 70% cash and 30% stock, according to one of the people
familiar with the situation. The Scripps family, which controls
about 92% of the company's voting stock, had indicated an interest
in receiving a substantial portion of cash in any transaction.
Negotiations between Discovery and Scripps could take several
days, one of the people said. There is no guarantee they will reach
a deal.
Discovery and Scripps have held talks about a combination more
than once in the past decade but have never been able to agree on
terms.
Both Viacom and Discovery are looking for ways to fortify their
business as more consumers cut the cable TV cord and midsize media
companies face the challenge of getting their channels carried in
new online TV services that offer slimmed-down packages of
networks. Gaining scale can theoretically help negotiations with
those distributors as well as advertisers.
Scripps is a compelling target, in part because some of its
channels -- especially HGTV, home to shows like "Property Brothers"
and "Fixer Upper" -- have enjoyed ratings growth over the past
several years as many general entertainment cable networks have
sunk in viewership. Scripps also offers some of the most
female-skewing networks on the cable dial, making it a must-buy for
advertisers trying to reach women.
In some ways, Viacom and Scripps would have been an odd match.
Scripps channels, which also include DIY Network and Travel
Channel, function primarily as lifestyle brands aimed at families,
homeowners and women, while Viacom's core brands like Nickelodeon
and Comedy Central focus more on kids, teens and young adults.
But Viacom was drawn by the benefits of scale. Together, the
companies would account for about 18% of TV ratings, on par with
conglomerates like Walt Disney Co. and Comcast 's NBCUniversal,
according to RBC Capital Markets. Viacom could also have injected
some of its ad-targeting prowess into Scripps' business and helped
the lifestyle networks gain greater carriage overseas.
Before its surprising pursuit of Scripps, Viacom was more
focused on unloading noncore assets to raise cash, like the sale of
its stake in pay-television channel Epix for about $600 million.
Mr. Bakish also had set out to turn around the struggling Paramount
film unit.
Without a merger, investors' attention will once again shift
back to those turnaround efforts. The company continues to confront
turbulence in the ratings and in its dealings with cable providers.
Some of its flagship networks have been put into more expensive
tiers by cable companies, reducing their reach. MTV's ratings have
shown signs of stabilizing, though they are still down 28% since
2013, while Comedy Central is down nearly 50% over that span,
according to Nielsen.
Sarah Rabil contributed to this article.
Write to Amol Sharma at amol.sharma@wsj.com and Joe Flint at
joe.flint@wsj.com
(END) Dow Jones Newswires
July 26, 2017 21:01 ET (01:01 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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