Discovery Communications (DISCA) has agreed to acquire Scripps Networks (SNI), apparently outbidding Viacom (VIAB) in the process. Investors do not like the deal which can be categorized as defensive, despite improved diversification and anticipated financial synergies, as these benefits are priced in the premium offered for Scripps already.
I think that the deal is defensive in terms of its nature. While improved negotiation power is a real benefit resulting from the deal, the reality is that time spent on TV watching is coming down while many apps are battling for the attention of the audience. While earnings multiples are non-demanding, after shares have been down substantially, I am no longer inclined to operate on the short side. The low earnings multiple does not make me upbeat given the leverage employed and pressure on the business model.
