Scripps OK with public split-up

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Shares of E.W. Scripps jumped more than 8% on Tuesday after the media firm said that its board has unanimously approved a plan to separate its business into two publicly traded companies — one centered on its national lifestyle cable networks and the other on local media franchises.

This is the latest decision by a media company to separate in an attempt to boost its stock price. Belo recently said it will separate its TV stations and print operations (HR 10/2). Given the strong reaction of Scripps shares, Wall Street expects investors to put pressure on more companies to follow suit.

One key candidate is USA Today publisher Gannett, the country's largest newspaper group, given its newspaper and TV station holdings. However, Goldman Sachs analyst Peter Appert said Tuesday he believes that in the case of Gannett "fundamental performance will eclipse restructuring speculation."

He also raised doubts about Scripps' ability to unlock shareholder value with the split.

"Different growth opportunities suggest that these business units can be maximized by operating them separately," he said, while warning that "we do not anticipate dramatic operational changes."

Echoing some of the themes mentioned as a rationale behind the Viacom-CBS split, Scripps president and CEO Kenneth Lowe said the planned split will give each entity "a sharpened strategic focus that would foster continued growth, solid operating performance and a clear vision on how best to build on the specific strengths of our national and local media franchises."

As part of a structural review, Scripps management looked this year at a possible spinoff of its newspaper business amid sluggish stock valuations for print media companies. However, restrictions in the Scripps family trust made such a move difficult.

In the split plan unveiled Tuesday, the separation works somewhat differently.

Scripps Networks Interactive would consist of the firm's Scripps Networks cable channel unit, which includes such brands as HGTV and Food Network and the related Internet businesses as well as online comparison shopping services Shopzilla and uSwitch.

The businesses have combined annual revenue of about $1.4 billion and 2,100 employees. Lowe would run them as president and CEO.

Lowe said in a conference call Tuesday that one benefit of the separation is a "sharpened focus" on midsized acquisitions that would benefit the cable networks and online operations, which have been seen as a key growth category at Scripps.

Asked whether management has had discussions to sell the networks, he said "we have not had in-depth talks to sell the networks."

The second firm will retain the E. W. Scripps name and include daily and community newspapers in 17 U.S. markets, 10 TV stations and other assets. These businesses have combined annual revenue of about $1.1 billion and employ about 7,100 people.

Richard Boehne, currently executive vp and COO, is expected to become president and CEO of the second firm.

Boehne said in Tuesday's call that the TV stations will at least initially be a key and strategic part of his new firm as his team believes in the long-term viability of local media. He signaled a likely focus on cost controls but also interest in future acquisitions.

The proposed separation would take the form of a tax-free dividend of stock in Scripps Networks Interactive distributed to all Scripps shareholders on a pro-rata basis. Appert said this structure makes it unlikely that either half of the business would be sold in the next couple of years because it would affect the tax-free status.

The deal is expected to be completed in second-quarter 2008.

As is the case now with Scripps, both companies would have common voting shares and Class A common shares. The Edward W. Scripps Trust, via its voting shares in both, would maintain control of both companies by electing a majority of the board members for each.

Scripps shares closed up 8.6% at $45.93. The stock has traded from $37.89-$53.39 during the past year.
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