Strategic Management-II

Discovery Inc.-The acquisition of Scripps

Network Interactive by Discovery
Communications

Section A- Group 5
Team Members:
Varun Monnier (17A1HP211)
Amrita Adhikari (17A1HP212)
Sunaina Saxena (17A1HP247)
Mayank Gautam (17A1HP248)
Utkarsh Agarwal (17A1HP278)
Anand Subramanian (17A1HP279)

1|Page
INTRODUCTION
What is an Acquisition?
An acquisition occurs when one company takes a controlling ownership interest in another firm,
a legal subsidiary of another firm, or selected assets of another firm such as a manufacturing
facility. It may involve the purchase of another firm’s assets or stock, with the acquired firm
continuing to exist as a legally owned subsidiary.

Types of Mergers and Acquisition

 Horizontal M&A: Occurs between two firms within the same industry or value chain
 Vertical M&A: Are those in which the two firms participate at different stages of the
production or value chain.
 Conglomerate M&A: Are those in which the acquiring company purchases firms in
largely unrelated industries.

COMPANY OVERVIEW

Discovery Communications Inc.

Discovery Communications Inc. (NASDAQ: DISCA) was an American mass media company
established in 1985. Discovery Channel, the company’s flagship brand was launched on 17th
June 1985. It was one of a kind of a network company that offered factual content. Before
acquiring Scripps Network Interactive, the company was present in more than 220 countries and
offered 8000 hours of content in 50 different languages. The company had 14% of Ad-
viewership from the United States of America alone. Discovery acquired a 70% stake in Travel
Channel in 1997 followed by acquiring The Health Channel and a joint venture with the OWN
(Oprah Winfrey Network) on 15th January 2008. At present, Discovery Communications offers
multiple service platforms that include free to Air and Pay- Television channels and online
streaming services, mobile-first content. Discovery had a market share of 5.3% in the US CATV
(Cable and Satellite Television) industry prior to the Scripps Acquisition.

Scripps Network Interactive

Scripps Networks Interactive (NASDAQ: SNI) was an American mass media company, which
was formed on July 1, 2008 through the spin-off of the E. W. Scripps Company's cable television
networks and online assets. Headquartered in Knoxville, Tennessee, it was the owner of several
major factual television cable channels, including Food Network, HGTV, Travel Channel, and
DIY Network, and operated or held stakes in localized international versions of these brands.
SNI also owned Polish broadcaster TVN, and a stake in the British channel group UKTV with
BBC Worldwide. It had a 3.8% market share in the United States prior to being acquired by
Discovery Communications.

2|Page
Objective of the Acquisition
 The strategic rationale of Discovery in acquiring Scripps was to create a scaled up
independent media company.
 The ulterior motive for Discovery was to tap into the Sports Network in the Europe
Geography to change perception in minds of the people that Discovery was a leader in
providing educational content via cable television.
 The potential for Scripps to grow outside USA will provide top line synergies while the
cost synergies are anticipated to rise to $350 Million annually.
 Both the companies together will account for 20% of ad-supported paid TV network in
the USA.

Golden Parachute
Special lucrative compensations packages, usually arranged as lump-sum payments of cash, that
are distributed to a selected group of senior executives if a pre-specified threshold (usually about
26,6%) of outside stock ownership is acquired in a takeover bid. Due to multiple acquisition
offers from Viacom and Discovery, Scripps Network, chalked out a Golden Parachute strategy to
avoid insolvency.

Analysis of the Acquisition

 Discovery acquired Scripps by paying USD 14.6 Billion partly financed in cash and
partly by debt. Discovery overpaid for the acquisition deal.
 Discovery identified cost synergies of USD 350 million due to this acquisition.
 The reason for overpaying is due to involvement of VIACOM network to acquire Scripps
for US$10 billion. This forced the discovery to finalize the deal at slightly overpaid
value.
 But in midst of the deal VIACOM backed out owing to huge debt obligations.
 After acquiring Scripps network, the new firm is operating under the name
“DISCOVERY INC”.

Post acquiring Scripps Network Interactive, Discovery Inc. (renamed post acquisition), Jon
Steinlauf a former Scripps Ad Sales Chief, was announced as the chief US Advertising Officer
for the combined company. The combined company now owns 17 Networks. With 97% of ads
being viewed live- same day, Steinlauf is touting as one of the only options for brands to reach
women, who are watching less live linear TV. The company had already planned its first big
Discovery-Scripps crossover event: Next month, TLC will air a wedding special-“Drew and
Linda Say I Do”—featuring Drew Scott, from HGTV’s Property Brothers. Kathleen Finch, who
oversees 12 networks as chief lifestyle brands officer said, “We’re already working on all kinds
of opportunities between the nets and the talent.”

3|Page
“It was the first time that all the nets were strategically pointing to one priority, and it ended up
being No. 1 in cable for Saturday night. So, we do have the power to move the audience when
we’re strategic about it,” said Finch. The acquisition is expected to be accretive to adjusted
earnings per share and to free cash flow in the first year after closing, including significant cost
synergies. The combination is expected to create a strong economic model with capacity for
rapid debt repayment and a clear runway for growth and value creation.

Discovery nearly spent USD 140 million in restructuring post acquisition. This restructuring
involved incorporating Scripps’ senior management in the board of the combined company
Discovery Inc.

Corporate Restructuring at Discovery Inc.

Jon Steinlauf, the present Chief Advertising Officer at Discovery Inc., restructured 12 out of 17
networks owned by Discovery Inc. He reorganized the sales teams around three network bundle
structures of four networks each—grouped by synergies in audience, content and ad categories.
The first bundle includes HGTV, ID, Animal Planet and DIY. HGTV and DIY were partnered
together at Scripps, while ID and HGTV share engaged female audiences. Greg Regis, who
comes from Scripps and is currently SVP of advertising sales and media partnerships, will
become EVP, national advertising sales and oversee that bundle.
Bundle No. 2 includes Food Network, TLC, Cooking Channel and OWN. Food and Cooking had
been paired at Scripps, while TLC and OWN represent broader appeal, pop culture and lifestyle
programming. Steinlauf saw an opportunity for food brands to expand to those networks. Karen
Grinthal, SVP of advertising sales for Food Network and Cooking Channel, will become EVP,
national advertising sales, and head up that bundle. The third bundle is comprised of the
portfolio’s male-focused networks: Discovery, Travel, Science and Motor Trend Network. That
will be headed up by Discovery’s Scott Kohn, currently group SVP of regional advertising sales,
who like Regis and Grinthal have been promoted to EVP, national advertising sales.
Separately, Steinlauf is forming a client partnerships team (headed by John Daily, SVP,
partnership sales), that will work with brands interested in buying cross-platform, cross-bundle
and tapping into its other offerings, like audience targeting platform Engage. As part of its
restructuring, Discovery laid off a significant portion of its ad sales team, pegging the number of
exiting employees in the double digits.

4|Page
REFERENCES
 Acquisition Plan Phases
 “Mergers, Acquisitions, and Other Restructuring Activities”-8th Edition, Donald M.
DePamphilis, Ph.D

 Innovation and the International Competitiveness of Manufacturing and Service

Industries -Fulvio Castellacci

 Company Overview
https://en.wikipedia.org/wiki/Scripps_Networks_Interactive
https://en.wikipedia.org/wiki/Discovery,_Inc.

5|Page