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Discovery Communications a Step Closer to Acquiring Scripps

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Discovery Communications (DISCA - Free Report) moved a step closer to buying fellow U.S. company — Scripps Network Interactive — following the receipt of antitrust clearance from the European Commission (EC).

The company intends to buy Scripps Network in a cash and stock deal worth $14.6 billion (inclusive of the assumption of Scripps’ net debt of approximately $2.7 billion). The deal was announced in July 2017. Approval by the EC is a positive step toward the completion of the deal.

However, clearance from the EC is not without conditions. In a bid to mitigate the threat of Discovery's increased bargaining power in Poland, following the completion of the acquisition, the commission has imposed concessions. Approval has been granted subject to the condition that Discovery will permit the distribution of TV channels — TVN24 and/or TVN24 BiS — by third parties on a non-exclusive, unbundled basis in Poland. We note that national commercial broadcaster in Poland – TVN – is owned by Scripps.

Moreover, the commission has reportedly turned down a request from Poland for referring the proposed takeover deal to the Polish competition authority.

Following the European approval, Discovery would be hoping to get the same from regulatory authorities in the United States among others. The deal is expected to close by Mar 31, 2018.

The merged entity will cater to nearly 20% of the ad-supported pay-TV audiences in the United States. On completion, the acquisition is likely to substantially expand Discovery’s product portfolio and boost its earnings (adjusted) as well as free cash flow in the first year. Additionally, the shareholders of Discovery and Scripps Network will own 80% and 20% of the combined entity, respectively.

Notably, both companies have struggled in the recent years as more and more consumers are moving from having cable subscriptions to online TV subscriptions. The rise of streaming platforms like Netflix (NFLX - Free Report) has not helped matters in this respect.
 

Zacks Rank & Key Pick

Discovery carries a Zacks Rank #3 (Hold). A better-ranked stock in the broader Consumer Discretionary space is Cinemark Holdings (CNK - Free Report) carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Cinemark have increased more than 7% over the last three months
 

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