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Viacom enters and exits hunt for Scripps

As was largely expected last week when Discovery Communications put in a bid to acquire Scripps Network, Viacom has now entered the bidding. Within 24 hours Scripps had rejected the bid and opted to enter exclusive discussions with Discovery, according to the Wall Street Journal.

In the buccaneering days of Viacom, the 76 year old Sumner Redstone (now 94) pulled off a deal to acquire CBS in the biggest deal in US media up to that date in 1999. In a five year period Sumner had gone from the steady business of acquiring movie theaters under the National Amusements banner, to owning the largest US national TV and radio broadcaster (CBS), a major motion picture studio (Paramount), and the Blockbuster DVD rental chain.

From there on in, the story of Viacom has been downhill, spinning off CBS separately, giving Blockbuster its freedom, mostly to die at the hands of Netflix, and now the new CEO, Bob Bakish has to earn his spurs in the megadeal market. Redstone held firm against all-comers to close out the Paramount deal in 1994, and ended up throwing in his lot with Blockbuster in order to make it seem irresistible, only for CBS to be discarded in 2005, to operate independently as a successful company.

But unlike his predecessor Redstone, Bakish has appeared to believe that the key to do deals is to offer cash, rather than a fair price, and it was always going to err on the side of caution given the amount of money that was needed to land Scrips – well over $10 billion. Redstone would have put together a set of complex stock arrangements and invited third parties to take part. It is a dangerous time for Viacom and its debt standing would have suffered terribly if it borrowed the $10 billion plus it will need to close the Scripps deal from US institutional lenders. Bakish will probably have heaved a sigh of relief that he was not taken up on his offer. However he must now look elsewhere for the a move out of the 18-34 market instead of the leading DIY and cooking franchise in the form of Scripps which owns the dominant US DIY program HGTV, as well as the Food Network and the Travel Channel, which had revenues of $3.4 billion in 2016 and is on track for something similar in 2017, but with a lower net income.

Viacom’s last balance sheet showed net debt of around $12.2 billion, with the only advantage being that none of that is due imminently. It has barely managed to produce two quarters in a row of growth since Bakish came onboard, but even in that short time, the company seems on track for over $13 billion revenues, against the $12.5 billion it did last year. It is at least out of intensive care, but perhaps not an ideal candidate for marriage.

Bakish took the helm late last year, once it was clear that CBS was not going to be merged back into Viacom and his initial strategy was to focus on six key brands of Comedy Central, MTV, BET, Nickelodeon and Nick Jr, and a new movie channel it is planning called Paramount Network. The other, non-core channels, like VH1 and TV Land, will remain on air for now, but we wouldn’t be surprised to see some of that fat trimmed. Bakish also sold off Viacom’s share of Epix for $600 million. If it wants to look elsewhere at similar partner to Scripps, it will have to become more liquid in the coming months.

After years of struggling with ratings, revenues and distribution, Viacom beat Wall Street’s dire expectations on revenue and earnings for Q2, but the company is still suffering advertising revenue declines – as are most of the other networks. And while ratings dips continue to plague most pay TV networks, two of Viacom’s strongest channels, Nickelodeon and MTV, have both seen some ratings rebounds recently.

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