UPDATE: Investors Give Thumb's Up to Scripps Splitting Into Two

By: Jennifer Saba The E.W. Scripps Co. announced on Tuesday it will pursue a plan to separate into two public companies, one focused on national media brands including HGTV and the other on local media franchises.

Scripps Networks Interactive will include TV networks and Internet properties HGTV, the Food Network, DIY Network, Fine Living Television Network and Great American Country. It also includes online comparison-shopping services Shopzilla and uSwitch. The businesses have a combined annual revenue of about $1.4 billion and 2,100 employees.

The E.W. Scripps Co. will include daily and community newspapers in 17 U.S. markets, 10 broadcast television stations, a character licensing and feature syndication business operated by United Media and Scripps Media Center in Washington D.C. The businesses have combined annual revenue of $1.1 billion and employ about 7,100 people.

The proposed plan would take the form of a tax-free dividend of stock in Scripps Networks Interactive distributed to all Scripps shareholders on a prorata basis.

The separation is expected to be complete in the second quarter of 2008. Kenneth W. Lowe, the current CEO of E.W. Scripps, will become president and CEO of Scripps Networks Interactive. Richard A. Boehne, currently the company's executive vice president and COO, will become president and CEO of the new E.W. Scripps.

Earlier this year, Scripps executives signaled to analysts during an investor conference that the company was considering strategies for its newspaper division including a possible spin-off. Later, executives backed away from the comments.

During a conference call with investors and analysts this morning, Lowe said that the timing was right "based on a lengthy process by board and management and desire to align our businesses in a new way."

When asked by an analyst when the newspaper division was going to see growth in the future, Boehne replied, "We really hope so. This has been the toughest 24 months in the history of the newspaper industry. ... It's hard to tell what the model is going to look like."

In a note to investors, Wachovia Research senior analyst John Janedis wrote, "This is clearly a value-enhancing transaction, in our view, as the networks should garner a substantial multiple, once unencumbered from newspapers."

Scripps's move comes weeks after Belo spun out its newspaper division after investors pressured executives to separate its faster growing television properties into a new company.

UPDATE: The AP reports that the move has proven popular with investors so far. An excerpt from its latest report follows.
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Lisa Monaco of Morgan Stanley & Co. predicted others would follow the lead of Belo and Scripps.

"We expect other traditional media companies such as GCI (Gannett) and JRN (Journal Communications) to come under pressure to boost shareholder returns," Monaco wrote to subscribers.

Scripps' stock jumped $3.65, or 8.63 percent, to close at $45.93 Tuesday. The stock has traded between $37.89 and $53.39 in the past year.

In a time of declining newspaper circulation, Scripps has aggressively diversified with popular cable TV networks, Shopzilla and uSwitch.

Lowe said the split would allow both companies to sharpen their strategic focus.

"The transaction, we believe, is also responsive to shareholders who would prefer to focus their investment either on growth potential of our national lifestyle television networks and global interactive enterprises, or on the dependable cash flow generated by our local newspapers, television stations and licensing and syndication businesses," Lowe said.

Scripps' newspapers include the Rocky Mountain News in Denver, the Commercial Appeal in Memphis, Tenn., the Knoxville (Tenn.) News Sentinel and the Ventura County (Calif.) Star.

Scripps said in July that it will end publication of The Cincinnati Post and The Kentucky Post on Dec. 31. Gannett, which publishes The Cincinnati Enquirer and The Kentucky Enquirer, had already said it would not renew a joint operating agreement that expires at the end of the year.

Scripps also said it plans to close The Albuquerque Tribune if a buyer cannot be found.

Lowe will become president and CEO of Scripps Networks, with Richard Boehne, executive vice president and chief operating officer, taking over as president and CEO of E.W. Scripps.

The corporate headquarters for both companies would be in Cincinnati.

The deal needs final approval by the company's board along with shareholders. It also is contingent upon a favorable ruling from the Internal Revenue Service on the tax-free nature of the transaction.