Wall Street applauds Scripps split


Scripps shares jumped 8.6% on Tuesday after the company announced plans to split into two companies. The current E.W. Scripps Company will retain the newspapers and TV stations, while the cable networks and online shopping comparison operations will be spun off into a new Scripps Networks Interactive. Current CEO Ken Lowe will go with the newbie, while COO Richard Boehne moves up to the top job at the newspaper/TV company.
In a conference call with Wall Street analysts, the two explained the division as a split between national media, cable/online, and local media, newspapers/TV. Now that the decision to divide the company has been made by the board of directors, Lowe says the company is no longer considering the possibility of selling the TV group.
Both of the new companies will still be controlled by The Edward W. Scripps Trust, with the right to elect a majority of the board members via its Common Voting Shares, which are not publicly traded, as opposed to the publicly traded Class A shares. That system of two classes of stock will continue for both companies. The makeup of each board of directors will be announced later. Both companies will be headquartered in Cincinnati.
Scripps Networks Interactive will be anchored by the company’s two most successful cable channels, HGTV and Food Network. By the way, much as Lowe would like to be able to buy up the one-third of Food Network owned by Tribune Company, he says no talks are currently taking place. Other cable networks will include DIY Network, Fine Living and Great American Country. The spin-off will also own the Shopzilla and uSwitch Internet sites for comparative shopping. It is estimated that the new company will have annual revenues of around 1.4 billion and 2,100 employees.

Meanwhile, the stripped-down E.W. Scripps Company will retain daily and community newspapers in 17 markets and 10 TV stations, including six ABC affiliates, three NBC and one independent. It will have revenues of around 1.1 billion and 7,100 employees.

Bond analysts on the conference call were happy to hear that the two companies will be refinancing their debt, rather than leaving all of the bond debt with the newspaper/TV company. In fact, it will end up with no more than 100 million in debt, while the new cable/Internet company will have around 465 million. Even so, Moody’s immdediately put E.W. Scripps on review for a possible ratings downgrade.

TVBR observation: Who’s next? Wall Street applauded as Belo announced a split – and now investors are cheering this move by Scripps. It seems unlikely that Gannett will follow suit. The TV business is a relatively small portion of the newspaper giant and it is the main business line, print, which is a drag on the stock price. There are hopes on Wall Street, though, that Media General might do a similar split into newspaper and TV companies.

Even post-split, E.W. Scripps is going to see its valuation driven more by the struggling newspaper business than the more robust television side. TV accounted for 364 million of 2006 revenues and 121 million of profits, while newspapers owned solely by Scripps brought in 716 million of revenues and 189 million of profits.