E.W. Scripps Co. (SSP:US) and Journal Communications Inc. agreed to a merger that will combine their broadcasting operations and spin off their newspaper businesses in a new, publicly traded company. Shares of both soared.
Shareholders of Journal Communications will receive 0.5176 share of Scripps for each they now own, according to a statement yesterday. They also will get 0.195 share of Journal Media Group, the newspaper business. The companies have a combined market value of about $1.56 billion.
The deal creates two companies positioned for transactions in television and publishing industries that are both going through consolidation. E.W. Scripps will have the fifth-largest independent TV station group in the U.S., reaching 18 percent of households, according to the statement. Journal Media, with newspapers in 14 markets, will have no debt.
“Investors certainly seem to prize the combined companies,” said Barry Lucas, an analyst at Gabelli & Co. in Rye, New York, who recommended buying shares of both companies. In addition to creating a stronger broadcast company with operating synergies, “they’ll be taking some costs out of the respective businesses.”
Gabelli affiliate Gamco Investors Inc., owns shares of Scripps and Journal Communications (JRN:US), and Lucas owns Scripps shares personally.
Journal Communications jumped (JRN:US) 24 percent to $10.88 at the close in New York, a seven-year high. The stock is up 17 percent this year. Scripps advanced 8.5 percent to $21.68, the highest since December 2013. The shares are little changed this year.
Near-term cost savings will total about $35 million, as Scripps newspapers in 13 markets are combined with the Milwaukee Journal Sentinel, and Scripps, while remaining controlled by its founding family, operates television and radio stations in 27 markets, up from 21.
Rich Boehne, chairman and chief executive officer of Scripps, will continue in his current role at the broadcasting company. Tim Stautberg, now senior vice president of newspapers for Scripps, will become CEO of Milwaukee-based Journal Media.
Investors in Cincinnati-based Scripps will get 0.25 share in the publishing company and a special dividend of $60 million, according to the statement. They will own 69 percent of the combined broadcast company and 59 percent of the newspaper group. Scripps will retain control of the Scripps National Spelling Bee.
There has been consolidation and spinoffs in both the television industry and in publishing. Rupert Murdoch separated his entertainment business, now 21st Century Fox Inc., last year while retaining the publishing assets such as the Wall Street Journal at News Corp. Tribune Co. (TRBAA:US) also is cleaving its television operation from print.
Sinclair Broadcast Group Inc. (SBGI:US) and Gannett Co. (GCI:US) have led a round of television-station buyouts. Sinclair, based in Hunt Valley, Maryland, is acquiring TV stations owned by the Allbritton family for $985 million, while Gannett bought Belo Corp., another TV station group, for $2.03 billion in December.
Lucas said consolidation in the TV business is likely to continue.
Wells Fargo served as financial adviser to Scripps, while Evercore Partners advised the Scripps family, according to the statement. Methuselah Advisors gave advice to Journal Communications.
(An earlier version of this story was corrected to remove a reference to the Dallas Morning News.)
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