End of Family Trust May Put Travel Channel, HGTV and Food Network in Play
Scripps Networks Interactive, the TV home of Paula Deen's mashed potatoes, is poised to lure bids from potential buyers now that the controlling family trust has disbanded.
The owner of the Travel Channel, HGTV and most of the Food Network has the second-fastest projected revenue growth through 2015 among 13 U.S. media companies valued at $1 billion or more, according to data compiled by Bloomberg.
Walt Disney Co., owner of sports network ESPN, should be drawn to Scripps Networks as a way to add more female-friendly content, said Citigroup Inc. and Macquarie Group Ltd., which also sees Time Warner as a potential acquirer.
Jason Bazinet, a New York-based analyst at Citigroup, wrote in an Oct. 19 note that Disney of Burbank, California, may be drawn to Scripps Networks to fill a "yawning gap" in its programming: "upscale, older women." The $92.9 billion company caters to children with the Disney Channel, teens with comic- book division Marvel, and men with ESPN, while Scripps Networks tends to attract women older than 49, Mr. Bazinet said in a separate report from Aug. 13.
Scripps Networks "probably belongs in a larger entity," Amy Yong, an analyst at Macquarie, said in a telephone interview. The dissolution of the family trust last week "puts Scripps into play," she added. "Anyone who doesn't have kind of female-centric or lifestyle-centric content would want to own this."
Mark Kroeger, a spokesman for Scripps Networks, declined to comment on whether the company had been approached by any buyers or would be open to a sale.
Scripps Networks traces its roots to 1878 when Edward W. Scripps founded the Penny Press in Cleveland. In 2007, newspaper owner E.W. Scripps Co. decided to split off its cable-TV assets, and the new company, known as Scripps Networks, became publicly traded the next year. The channels owned by Knoxville, Tennessee-based Scripps Networks -- HGTV, the Travel Channel, DIY Network, the Cooking Channel, Great American Country, and 69% of the Food Network -- focus on topics such as cooking, gardening, housing and travel.
The family trust is being dissolved because of the death of Robert P. Scripps, a grandson of the founder, according to an Oct. 19 statement. The trust's holdings, including 28.4% of Scripps Networks's publicly traded Class A common shares and 93.5% of the voting shares as of Sept. 30, will now be distributed to descendants of Edward W. Scripps.
Scripps family members may not be motivated to sell, given the trust's success at guiding the company to profitability in the past, said Tom Russo, a partner at Gardner Russo & Gardner, which oversees more than $5 billion including Scripps Networks shares. The company's revenue rose 34% in the past two years.
"Anyone who's been involved with the family knows that by having the capacity to keep those share votes together, they've been able to accomplish enormous things," Mr. Russo said in a phone interview. "They've advanced their finances better than just about any other family trust that you could see, and knowing that , they would be well advised to think of other ways to somehow duplicate it."
But control "seems to be spread out" and "more decision makers have input into the process," Robin Diedrich, an analyst at Edward Jones, said in a phone interview. "It certainly seems to be more likely that if someone were to make a great offer, that you could see more pressure from certain beneficiaries that maybe are in favor of selling."
Scripps Networks is offering potential buyers one of the fastest growth rates in the industry. Revenue will increase 23.9% between 2012 and 2015, according to the average of analysts' estimates compiled by Bloomberg. The company, with shows from Deen's "Paula's Home Cooking" to "Diners, Drive-Ins and Dives" and "House Hunters," is also proving more effective at generating profits off its assets with its return on assets of 14%, more than double the peer median of 5.9%.
Another possible bidder is Comcast, which purchased a cable-TV system from E.W. Scripps Co. in 1996, said Sean Bonner, chief investment officer at Carne Capital, which oversees about $65 million including Scripps Networks shares. Comcast acquired control of NBC Universal in 2011, adding networks from CNBC to USA Network to the company's existing cable delivery system.
Shares of Scripps Networks had risen 50% in 2012 through yesterday, reaching a record high of $63.72. Given the company's growth potential and the value of its content, any buyer would have to pay a premium of at least 30% to strike a deal, Mr. Bonner said. Based on yesterday's close, that would value it at $82.84 or more.
"As a shareholder, I would demand a steep premium because I think this is a great business," Mr. Bonner said in a phone interview. "Any bigger company that 's looking for content and content that provides a great return on assets" would want Scripps Networks, Mr. Bonner said.
Michelle Bergman, a spokeswoman for Disney, didn't respond to a phone message or e-mail seeking comment on whether the company would be interested in buying Scripps Networks. John Demming, a spokesman for Comcast, and Keith Cocozza, a spokesman for Time Warner , declined to comment.
Cable-channel owners such as Disney may have been deterred from making an offer "because they just didn't think it was in play," said Jerome Dodson, president of Parnassus Investments, which oversees about $6.7 billion including Scripps Networks stock. The dissolution of the trust "certainly does open the possibility of selling to an outside entity."
Still, owners of shares that the trust held face restrictions on the sale of stock: No one can sell without first offering them to the rest of the beneficiaries and Scripps Networks itself, according to filings with the Securities and Exchange Commission. The group will continue to elect a majority of board members, according to last week's statement.