OREANDA-NEWS. August 07, 2017. Discovery Communications, Inc. (Nasdaq: DISCA, DISCB, DISCK) ("Discovery") and Scripps Networks Interactive, Inc. (Nasdaq: SNI) ("Scripps") today announced that they have signed a definitive agreement for Discovery to acquire Scripps in a cash-and-stock transaction valued at $14.6 billion, or $90 per share, based on Discovery's Friday, July 21 closing price. The purchase price represents a premium of 34% to Scripps' unaffected share price as of Tuesday, July 18, 2017. The transaction is expected to close by early 2018.

"This is an exciting new chapter for Discovery. Scripps is one of the best run media companies in the world with terrific assets, strong brands and popular talent and formats.  Our business is about great storytelling, authentic characters and passionate super fans. We believe that by coming together with Scripps, we will create a stronger, more flexible and more dynamic media company with a global content engine that can be fully optimized and monetized across our combined networks, products and services in every country around the world," said David Zaslav, President and CEO, Discovery Communications. 

"Through the passion and dedication of our incredible employees, and with the support of the Scripps family, we have built a lifestyle content company that touches the lives of consumers every single day," said Kenneth W. Lowe, Chairman, President & CEO, Scripps Networks Interactive. "This agreement with Discovery 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."

New Innovator Across a Broad Portfolio of Entertainment Assets

Together, Discovery and Scripps will offer a complementary and dynamic suite of brands. The combined company will produce approximately 8,000 hours of original programming annually, be home to approximately 300,000 hours of library content, and will generate a combined 7 billion short-form video streams monthly, demonstrating its commitment to delivering content as a top short-form provider.

Combined, Discovery and Scripps will have nearly 20% share of ad-supported pay-TV audiences in the U.S. Additionally, the combined company will be home to five of the top pay-TV networks for women and will account for over 20% share of women watching primetime pay-TV in the U.S.

The Combined Portfolio's Brands Will Include: 

Discovery: Discovery Channel, TLC, Investigation Discovery, Animal Planet, Science and Turbo/Velocity, as well as OWN in the U.S., Discovery Kids in Latin America, and Eurosport, the leading provider of locally relevant, premium sports and Home of the Olympic Games across Europe.

Scripps: HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel and Great American Country, as well as TVN, a premiere multi-platform provider of entertainment, lifestyle and news content in Poland; UKTV, an independent commercial joint venture with BBC Worldwide; Asian Food Channel, the first pan- regional TV food network in Asia; and lifestyle channel Fine Living Network.

International Growth Opportunities

The combination will extend Scripps' brands, programming and talent to a broader international audience through Discovery's best-in-class global distribution, sales and languaging infrastructure.  Discovery sees strong opportunities to strengthen its existing global female networks with select content from Food Network, HGTV and all the Scripps brands. Scripps also has a strong position in key international growth markets, including the U.K. and Poland, and will help fuel Discovery's existing content pipeline in growth areas like Discovery's Latin America Home and Health network in Latin America.

Social, Mobile and Non-linear Growth Opportunities 

The combined company will deliver 7 billion monthly short-form streams, bringing together Scripps' established expertise in short-form video creation with Discovery's investment in Group Nine Media to create a new scale player with a strong ability to compete for audiences and ad dollars. The combination will give Discovery an outstanding presence on new video and social media platforms. Additionally, Scripps Lifestyle Studios will become a key component of Discovery's content engine, making the company a leader in key strategic areas such as data-driven ad sales, endemic advertising, and branded entertainment solutions. 

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.

Synergies

The combination is expected to create significant cost synergies, estimated at approximately $350 million. The deal is expected to be accretive to Adjusted Earnings per Share and to Free Cash Flow in the first year after close.

Transaction Details

Scripps shareholders will receive $90 per share under the terms of the agreement, comprised of $63.00 per share in cash and $27.00 per share in Class C Common shares of Discovery stock, based on Discovery's Friday, July 21 closing price. The stock portion will be subject to a collar based on the volume weighted average price of Discovery Class C Common Shares over the 15 trading days ending on the third trading day prior to closing (the "Average Discovery Price"). Scripps shareholders will receive 1.2096 Discovery Class C Common shares if the Average Discovery Price is at or below $22.32, and 0.9408 Discovery Class C Common shares if the Average Discovery Price is at or above $28.70.  If the Average Discovery Price is greater than $22.32 but less than $28.70, Scripps shareholders will receive a number of shares between 1.2096 and 0.9408 equal to $27.00 in value. If the Average Discovery Price is between $22.32 and $25.51, Discovery has the option to pay additional cash instead of issuing more shares.

Scripps shareholders will have the option to elect to receive their consideration in cash, stock or the mixture described above, subject to pro rata cut backs to the extent cash or stock is oversubscribed.

This purchase price implies a total transaction value of $14.6 billion, including the assumption of Scripps' net debt of approximately $2.7 billion. Post-closing, Scripps' shareholders will own approximately 20% of Discovery's fully diluted common shares and Discovery's shareholders will own approximately 80%. This calculation is based on the number of Discovery shares outstanding today.

The cash portion of the purchase price will be financed with a combination of new debt and cash on hand. Discovery has secured fully committed financing from affiliates of Goldman Sachs & Co. LLC to fund the acquisition. Discovery expects to maintain investment grade ratings throughout this transaction. As part of its commitment to de-lever its balance sheet, Discovery intends to suspend its share repurchase program until such time as its credit metrics are in line with its rating. Specifically, Discovery expects to be below 3.5x gross debt to AOIBDA within the first two years after the transaction closes, using substantially all free cash flow to reduce pre-payable and/or short term debt. 

Mr. Lowe is expected to join Discovery's board of directors following the close of the transaction. 

The transaction is subject to approval by Discovery and Scripps' shareholders, regulatory approvals, and other customary closing conditions.

John C. Malone, Advance/Newhouse Programming Partnership and members of the Scripps family have entered into voting agreements to vote in favor of the transaction and take certain other actions, in each case subject to the terms and conditions of their respective agreements.

Guggenheim Securities, LLC and Goldman Sachs & Co. LLC served as financial advisors and Debevoise & Plimpton LLP served as legal advisor to Discovery. Allen & Company LLC and J.P. Morgan Securities LLC served as financial advisors and Weil Gotshal & Manges LLP served as legal advisor to Scripps. Evercore Group L.L.C. served as financial advisor and Kirkland & Ellis served as legal advisor to the Scripps family.

About Discovery Communications:

Discovery Communications (Nasdaq: DISCA, DISCB, DISCK) satisfies curiosity and captivates superfans around the globe with a portfolio of premium nonfiction, lifestyle, sports and kids content brands including Discovery Channel, TLC, Investigation Discovery, Animal Planet, Science and Turbo/Velocity, as well as OWN: Oprah Winfrey Network in the U.S., Discovery Kids in Latin America, and Eurosport, the leading provider of locally relevant, premium sports and Home of the Olympic Games across Europe. Available in more than 220 countries and territories, Discovery's programming reaches 3 billion cumulative viewers, who together consume 54 billion hours of Discovery content each year. Discovery's offering extends beyond traditional TV to all screens, including TV Everywhere products such as the GO portfolio and Discovery Kids Play; over-the-top streaming services such as Eurosport Player; digital-first and social video from Group Nine Media; and virtual reality storytelling through Discovery VR. For more information, please visit www.discoverycommunications.com.

About Scripps Networks Interactive:
Scripps Networks Interactive, Inc. (Nasdaq: SNI) is one of the leading developers of engaging lifestyle content in the home, food and travel categories for television, the Internet and emerging platforms. The company's lifestyle media portfolio includes leading TV and entertainment brands HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel and Great American Country. Its digital division, Scripps Lifestyle Studios, creates compelling content for online, social and mobile platforms. International operations include TVN, Poland's premier multi-platform media company; UKTV, an independent commercial joint venture with BBC Worldwide; Asian Food Channel, the first pan-regional TV food network in Asia; and lifestyle channel Fine Living Network. The company's global networks and websites reach millions of consumers across North and South America, Asia-Pacific, Europe, the Middle East and Africa. Scripps Networks Interactive is headquartered in Knoxville, Tenn. For more information, please visit http://www.scrippsnetworksinteractive.com.