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Discovery to Buy Scripps Networks for $14.6 Billion

Discovery Communications said it would buy rival cable-network programmer Scripps Networks Interactive for $14.6 billion, a move that will band popular TV outlets such as Discovery Channel, TLC, Food Network and HGTV under one umbrella as media companies seek heft while distributors like Comcast, Charter Communications and AT&T gain more leverage in the sector.

The deal, slated to close in early 2018, calls for Discovery to pay Scripps shareholders about $90 a share, representing a 34% premium to the Knoxville, Tenn., company’s most recent closing price. Discovery said it would offer $63 a share in cash and $27 a share in stock. Kenneth Lowe, the chairman and CEO of Scripps, will join Discovery’s board of directors upon closing of the agreement. The companies said media investor John Malone and the Newhouse family, each of whom control a significant chunk of Discovery, will vote in favor of the merger. Scripps’ controlling family shareholders will do the same. Investors will likely focus on the companies’ promise to eliminate about $350 million worth of costs after combining.

The merged Discovery and Scripps will produce about 8,000 hours of original programming annually, control 300,000 hours of library content, and generate 7 billion short-form video streams monthly. The combined companies will represent about 20% of ad-supported pay-TV viewership in the U.S., and claim a 20% share of female primetime viewing as home to five of the cable networks that attract predominantly female viewers in the U.S.

The two companies propose joining at a time when the media industry is placing new emphasis on how programming will be distributed in the future, as more consumers turn to streaming video , mobile devices and on-demand consumption. Adding the Scripps networks would give Discovery more leverage if it were to launch a so-called “skinny bundle” of programming to audiences. It would also give Discovery more bargaining power when it negotiates with advertisers, content distributors and subscription video-on-demand outlets who might like to stream its programs.

“We think this gives us a huge content engine, and it also gives us pivot that content on to any platform, whether it be ‘skinny bundles,’ direct to consumer, or the 7 billion screens out there in mobile,” said David Zaslav, Discovery’s chairman and CEO, during a call with investors and analysts Monday. “This gives us much more optionality and much more strength.”

Discovery has quietly grown itself through intriguing acquisitions. Under Zaslav, Discovery has in recent years placed new focus overseas, building an international presence by snapping up shares in the European sports network Eurosport. In 2015, Eurosport won the rights to broadcast the Olympics to most of Europe starting in 2018.

Zaslav had largely left the company’s U.S. assets unchanged. But now Discovery stands to inherit not only HGTV and Food Network, two of Scripps’ best-known assets, but also the Travel Channel, DIY Network, Cooking Channel and Great American Country. Scripps also has a half share, with BBC Worldwide, in UKTV, the U.K. digital channel operator, and TVN in Poland.

The combined company could help distribute the Scripps networks more broadly overseas, suggested RBC Capital Markets analyst Steven Cahall, in a recent research note, while bolstering the cable outlets’ standing with U.S. distributors.

The merger announcement comes as both companies face headwinds.  Discovery on Monday reported tepid performance in its second fiscal quarter. The Silver Spring, Md., company said net income fell during the period, while U.S. ad revenues were basically flat. Scripps, meanwhile, trimmed its growth outlook in 2017, citing recent advertising performance in a filing Monday with the U.S. Securities and Exchange Commission.

Discovery outlasted short-term interest in Scripps by rival Viacom Inc. That company, the owner of MTV, Comedy Central and Nickelodeon, had briefly flirted with the notion of making an all-cash bid for the owner of Food Network.

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