Scripps-Journal Deal Called ‘A Natural Fit’

E.W. Scripps, via its deal with Journal Communications, in a single move exits the newspaper business, becomes a broadcast-centric company and expands its station portfolio by 62%.

The deal, which is projected to close sometime next year, also puts Scripps back in the radio business after a 30-year absence.

The flip side is that the transaction marks Journal’s exit from broadcasting to focus on newspapers.

During this morning’s investor conference call on the deal, Rich Boehne, Scripps president-CEO, called Scripps and Journal “a natural fit.”

After batting around the idea of a Scripps-Journal deal with Steve Smith, Journal president-CEO, for some time, things got serious in February of this year, Boehne said. “I had to climb over mounds of snow so we could meet at some little Italian restaurant past Hell’s Kitchen,” he recalled.

The deal marks a sea change for Scripps, whose long history in newspaper publishing dates back to its creation in 1878.

Now, 135 years later, Scripps has transformed itself from a leader in a sector that began a steep decline with the advent of the Internet to one of the larger broadcast television station groups in the U.S.

With the deal, Scripps becomes the fifth largest independent station group in terms of reach, covering 22 million U.S. television households — roughly 18 % —  with 34 stations in 24 markets, including 14 in top 50 DMAs.

The new station group includes 14 ABC affiliations, 5 NBC, 3 Fox, 2 CBS, 5 Azteca, 2 MyTV, 1 CW and 1 independent.

The deal also markedly expands Scripps’ platform for distributing programs it has developed, including Let’s Ask America and Right This Minute. The List and The Now are set to launch this fall.

Expansion of its station group portfolio also positions Scripps to benefit from increasing retransmission revenue and political advertising, particularly in eight presidential swing states.

The move to combine Scripps’ and Journal’s broadcast operations and put them under the Scripps banner, while spinning off the newspaper business, drew praise from a number of analysts on the call.

Calling it one of the most creative deals he’d ever seen, Mario Gabelli said, “I just commend you.”

Scripps had begun cutting its losses in newspaper publishing years before — most notably shuttering the Rocky Mountain News in 2009. But it was the death of Robert P. Scripps in 2012 and the subsequent dissolution of the Edward W. Scripps Trust that cleared the way for the company to shed newspapers to focus on the more attractive broadcast sector.

At mid-day, investor approval of the deal was evident in rising share prices — Scripps shares (SSP) were up 12% while Journal shares (JRN) jumped 28%.

The deal is structured as a double spin-double merger. For Scripps, the newspaper spin-off is structured to be tax-free. Journal faces a tax hit from the spin-off. While Scripps’ Tim Stautberg will become president-CEO of Journal Media Group encompassing newspaper publishing operations, those operations will be headquartered in Milwaukee, home to the Journal’s flagship Milwaukee Journal Sentinel.

Rich Boehne remains president-CEO of the E.W. Scripps Co., which maintains headquarters in Cincinnati. Steve Smith, current president-CEO of Journal Communications, will become non-executive chairman of Journal Media Group.

Scripps shareholders with hold majority economic interest in both the new Scripps and Journal Media Group: 69% and 59%, respectively. Journal shareholders will hold 31% and 41%, respectively.

In addition, Scripps family voting control of Scripps remains intact. There will be no controlling shareholder at the new Journal Media Group.

The deal is subject to approval by shareholders at Scripps and Journal and regulatory approvals. Boehne said he expects no substantial regulatory hurdles at either the FCC or SEC.