Media company E.W. Scripps, seeking to capitalize on its fast-growing cable and Internet-based businesses, said Tuesday it plans to split its stagnant newspaper business into a separate company.
The move comes two weeks after another media company, Belo Corp., said it would spin off its newspaper business, which has been struggling to keep readers and advertising dollars.
Scripps signalled in January that it planned to focus on its growing businesses and might sell or spin off its newspaper operations. Analysts said then that investors would respond well to some type of separation and they did Tuesday, pushing shares up more than eight per cent.
The Scripps split differs from Belo in that Scripps' television stations would be part of the newspaper company, which some analysts have labelled ``old media'' business. But a family trust will control both Scripps companies, making the spinoff an unlikely takeover target.
``The family's been in the business a long time. I don't think they want to get out of it,'' said Edward Atorino, an analyst with The Benchmark Co.
``This move keeps that going and separates the growth business. It makes the shareholders happy and also gives management some time to fix it out of the spotlight of the combined operation.''
Scripps Networks Interactive would include HGTV, the Food Network, DIY Network, Fine Living Television Network and Great American Country along with online comparison shopping services Shopzilla and uSwitch. They have combined annual revenue of approximately US$1.4 billion and 2,100 employees, Scripps said.
E.W. Scripps Co. would include newspapers in 17 U.S. markets, 10 broadcast television stations, a character licensing and feature syndication business operated by United Media and Scripps Media Center in Washington, D.C. These businesses have combined annual revenue of about $1.1 billion and employ about 7,100 people, the company said.
Under the plan, Scripps shareholders would receive stock in Scripps Networks in the form of a tax-free dividend.
``Needless to say, this is a significant development in the history of this great media company,'' Kenneth Lowe, Scripps' president and chief executive, told analysts.
``For nearly 130 years, the E.W. Scripps Co. has prospered by staying ahead of industry trends and market forces that affect our businesses. The transaction announced this morning is the next logical step in the company's evolution.''
Scripps traces its beginnings to 1878, when Edward W. Scripps founded The Penny Press in Cleveland. It was family owned until 1988, and a family trust will control both new companies.
The split is expected to be completed in the second quarter.
``This is clearly a value-enhancing transaction, in our view, as the networks should garner a substantial multiple once unencumbered from newspapers,'' analyst John Janedis of Wachovia Capital Markets said in a note to investors.
Lisa Monaco of Morgan Stanley & Co. predicted others would follow the lead of Belo and Scripps.
``We expect other traditional media companies such as GCI (Gannett) and JRN ( Journal Communications) to come under pressure to boost shareholder returns,'' Monaco wrote to subscribers.
Scripps' stock jumped $3.65, or 8.63 per cent, to close at $45.93 Tuesday. The stock has traded between $37.89 and $53.39 in the past year.
In a time of declining newspaper circulation, Scripps has aggressively diversified with popular cable TV networks, Shopzilla and uSwitch.
Lowe said the split would allow both companies to sharpen their strategic focus.
``The transaction, we believe, is also responsive to shareholders who would prefer to focus their investment either on growth potential of our national lifestyle television networks and global interactive enterprises, or on the dependable cash flow generated by our local newspapers, television stations and licensing and syndication businesses,'' Lowe said.
Scripps' newspapers include the Rocky Mountain News in Denver, the Commercial Appeal in Memphis, Tenn., the Knoxville (Tenn.) News Sentinel and the Ventura County (Calif.) Star.
Scripps said in July that it will end publication of The Cincinnati Post and The Kentucky Post on Dec. 31. Gannett, which publishes The Cincinnati Enquirer and The Kentucky Enquirer, had already said it would not renew a joint operating agreement that expires at the end of the year.
Scripps also said it plans to close The Albuquerque Tribune if a buyer cannot be found.
Lowe will become president and CEO of Scripps Networks, with Richard Boehne, executive vice president and chief operating officer, taking over as president and CEO of E.W. Scripps.
The corporate headquarters for both companies would be in Cincinnati.
The deal needs final approval by the company's board along with shareholders. It also is contingent upon a favorable ruling from the Internal Revenue Service on the tax-free nature of the transaction.
On the Net: http://www.scripps.com