Discovery eyes Scripps Networks acquisition

Shares of Scripps Networks Interactive surged on Tuesday and Wednesday after news spread that Discovery Communications (Nasdaq: DISCA) has its eye on Scripps. Together, a combined Discovery/Scripps would have a market capitalization of about $43 billion, according to media reports.

The possible deal would combine some of the industry's most popular and profitable networks, including Discovery Channel, HGTV, Food Network, Animal Planet and Travel Channel, among several others. Scripps has been considered a prime acquisition target for some time and Discovery has kicked Scripps' tires in the past, according to reports. However, Discovery isn't the only company that has been interested in Scripps' assets. Walt Disney Co. was deep in buyout talks with the folks in Knoxville, Tenn., three years ago until Disney board member Steve Jobs nixed the deal, according to Variety.

Scripps Networks Interactive is publicly traded but Scripps family members still have tight control. Some two dozen descendants of founder E.W. Scripps received stock as part of a family trust that was dissolved a year ago after the death of Scripps' last surviving grandchild. The descendants can sell their stock but their ability to do so is restricted. They have to offer their shares to other heirs or to the company directly before they can put them on the market. A sale of the entire company would allow all the Scripps descendants to cash out at the same price.

While many news reports and pundits pondered a deal between Discovery and Scripps, some analysts were trying to splash cold water on a proposed acquisition of Scripps by Discovery. Citigroup's Jason Bazinet warned investors on Wednesday not to take the hype seriously, saying the deal only makes sense if Discovery can expand Scripps' international markets and he doesn't believe that is possible at this juncture.

Of course, the sale of Scripps could be the tip of the iceberg when it comes to consolidation in the media arena. Other possible acquisition targets include Starz, Viacom and even Discovery, according to news reports. And then there is the entire hubbub over possible consolidation on the distribution side of the business. Time Warner Cable is considered a prime bull's eye and Liberty Media chief and long-time media merger guru John Malone has been touting the benefits of consolidation for some time. Charter Communications, of which Malone's Liberty owns a significant chunk, has been on the prowl for more systems, having made a couple of unsuccessful offers for Time Warner in the last couple of months. Other MSOs, including Comcast and Cox, have also expressed interest in Time Warner Cable but so far, no deals have been cut.

For more:
- see this WSJ article (sub. req.) 
- see this Reuters article
- see this Variety article
- see this Barron's article

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