Food Network Recipe for Success

Wall Street analysts cite natural fit of channels, international upside

Shares of Scripps Networks Interactive climbed more than 7.6% in trading Wednesday, buoyed by the news that Discovery Communications is considering a bid for the parent company of Food Network, HGTV and other channels.

SNI shares hit a peak of $85.73 before closing at $81, near the stock’s 52-week high of $81.21. Shares dipped in after-hours trading, following the day’s run-up and the spike in after-hours activity on Tuesday, following Variety’s report on Discovery’s renewed interest in a deal.

Wall Street analysts were mostly positive on the prospect of a deal. Knoxville, Tenn.-based SNI has strong brands in Food, HGTV and Travel Channel, but it is handicapped by its small size at a time when MVPDs are clearly in the midst of a spurt of consolidation. Discovery also has extensive international reach, while SNI has struggled to make inroads in overseas markets, even with content that has universal appeal.

“Discovery simply has the boots on the ground and negotiating muscle to ramp growth,” wrote Wunderlich Securities analyst Matthew Harrigan in a research note sent Wednesday.

Amy Yong of Macquarie Securities estimated that SNI could go for a premium of about $90 a share.
“The interest in Scripps highlights the attractiveness of its networks that reach a high-income premium female demographic and underutilized balance sheet,” she wrote.

SNI has flirted with larger media congloms for several years, since it was split off from the rest of E.W. Scripps Co. assets in 2008. But one factor that is likely to encourage M&A overtures is the fact that the family trust that controls SNI was dissolved in October 2012, following the death of the last grandchild of E.W. Scripps. The 24 heirs to the trust still control more than 90% of the voting stock in SNI, although there are complicated restrictions on their ability to cash out shares.

A cash or stock sale of SNI to a larger entity like Discovery would allow the family members to liquidate or enhance their holdings.

A rep for Discovery declined comment on Wednesday, while a SNI rep did not immediately respond to a request for comment.

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