Scripps' Poland Deal Leaves Analysts With Mixed Feelings

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Scripps Networks CEO Ken Lowe

Wall Street discusses the $615 million price tag and strategic benefits, with one saying that "big media names may feel increasing pressure to acquire international assets."

Wall Street analysts have mixed views on Scripps Interactive Networks’ acquisition of Polish TV group TVN.

The cable networks group, led by CEO Ken Lowe, unveiled the $615 million deal to acquire a controlling 52.7 percent stake in the company earlier in the week

"This gives Scripps its first meaningful international exposure,” wrote Cowen analyst Doug Creutz, who rates the stock at “market perform,” in a report. “However, we don't see a lot of strategic merit to the deal."

He also argued that the “expensive acquisition suggests [a] potential winner's curse dynamic.” The analyst explained that the deal valuation was “quite a bit more expensive than U.S. media valuations,” adding that TVN’s ”expected growth does not appear to us to justify the premium.” Creutz suggested that buying back stock would have been “significantly more accretive” to Scripps’ financials.

He concluded: “We have been and continue to be concerned that with domestic fundamentals in question, big media names may feel increasing pressure to acquire international assets, potentially leading to a bidding war, spiraling valuations and likely capital destruction. This is not the first Big Media international acquisition over the last couple of years (Viacom-Channel 5, Discovery-SBS & Eurosport & All3Media, Time Warner-Eyeworks) and we believe the intensity of deal-making could well increase.”

Morgan Stanley analyst Benjamin Swinburne in his report wrote: “Rising financial leverage and a focus on international have been media sector hallmarks. With this transaction, Scripps addresses both points, although in a fairly large deal concentrated in one country.”

He said that the deal was “well timed” given the current strength of the U.S. dollar and low euros borrowing costs. But he also highlighted that for Scripps it came “at a premium to buying its own stock back” and that it was “unclear” if the company’s post-deal growth rate would be “materially higher.”

He concluded: “While we expected Scripps to look for international assets, this transaction has elements that are compelling (diversification outside the U.S.) but also raises questions given it is primarily ad driven and concentrated in one market.”

Nomura analyst Anthony DiClemente also pointed out the positives, such as earnings benefits and risks, saying that “investors may be concerned that it could reduce the pace of share buybacks and that the company is investing in Poland at a time when foreign-exchange headwinds have been a considerable drag on results.”

But he spent more time highlighting “a number of positives,” including “increased international scale in terms of networks and programming; diversification away from the U.S. market, in which Scripps’ ad revenue growth has slowed; a leadership position in a market that is growing advertising spend about 4 percent year-over-year; and possible downstream digital sales opportunities as TVN owns the majority of its content.”

Email: Georg.Szalai@THR.com
Twitter: @georgszalai

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