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Discovery Mulling Bid for Owner of Food Network, HGTV (Exclusive)

Scripps Networks Interactive seen as prime acquistion target as cable consolidation heats up

Discovery Communications is mulling a bid for Scripps Networks Interactive, parent company of Food Network, HGTV, Travel Channel and other lifestyle-oriented cablers.

A source with knowledge of the situation said the prospect of Discovery making a run at Scripps Networks was discussed Tuesday at a Discovery board meeting.

SEE ALSO: Scripps Networks Interactive Shares Spike on Discovery News

A rep for Discovery declined comment on the matter, as did a rep for SNI.

“We simply cannot comment on any potential transactions one way or another,” said Discovery Communications spokesman David Leavy.

SNI’s holdings would be a natural fit with Discovery’s suite of lifestyle-driven cablers, which include the mothership channel, TLC, Animal Planet and OWN.

Knoxville, Tenn.-based SNI has been seen as a prime acquisition target for some time. The company has valuable brands, particularly in Food Network and HGTV, but is small enough to be easily integrated into a larger conglom with cable programming assets. SNI has a market cap of about $11 billion, with the stock closing Tuesday at $75.26, up 52 cents.

Discovery is known to have kicked the tires on SNI in the past, as has NBCUniversal, Fox and Disney. Disney is said to have been in advanced talks to acquire SNI about three years ago — until board member Steve Jobs nixed the deal, reportedly out of his lack of faith in the future of linear channels.

The company is publicly traded but tightly controlled by descendants of the newspaper magnate E.W. Scripps. The trust that previously controlled SNI was dissolved in October 2012 after the death of E.W. Scripps’ last surviving grandchild. The 24 heirs to the trust received stock in the company, but they face restrictions on their ability to liquidate those shares.

According to SEC filings, Scripps heirs have to offer shares to other heirs or SNI directly before they can put them on the market. That could be a cumbersome process, whereas a sale of the company would allow all Scripps beneficiaries to cash out at the same price.

SNI had until recently been looking to bring in new executive leadership to work under CEO Ken Lowe. Industry sources said the company had been hunting for a president-COO but recently tabled the effort — leading to speculation that a transaction was in the offing.

There’s been plenty of speculation that some M&A activity would transpire sooner than later in the cable programming sector given the increasing likelihood of consolidation on the distribution side of the business. Several different scenarios have been floated that could see Time Warner Cable be sold or split up in some form among Comcast Corp., Charter Communications and Cox Communications.

Part of what is prompting distributor consolidation is the imperative to increase leverage over programmers who have drove a hard bargain in the increasingly bruising process of setting carriage agreements. The prospect of facing larger entities across the negotiating table undoubtedly has content companies thinking about how they can increase their own clout with MVPDs. The more must-have channels that a programmer controls, the more leverage it has with operators.

If anything, a Discovery-Scripps tie-up may just be the beginning of further dealmaking in the sector. AMC Networks, Starz, Viacom and even Discovery itself have been mentioned as possible acquisition targets.

Cynthia Littleton contributed to this report.

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