Thursday, July 31, 2014
NEW YORK (AP) — Journal Communications Inc. of Milwaukee and E.W. Scripps Co. of Cincinnati have agreed to combine their broadcasting operations while spinning off newspaper holdings into a separate public entity.
The deal announced late Wednesday is the latest move by media companies to separate sluggish newspaper operations from more profitable broadcast units, as the industry adapts to consumers' increasing taste for digital content.
The trend started with Belo Corp., which in 2008, spun off its newspapers including The Dallas Morning News. More recently, The Tribune Co. said it is splitting its print business, including the Los Angeles Times, and its TV channels. News Corp. and Time Warner Inc. have also split into separate publishing and entertainment companies.
Shareholders have shown their preference for pure-play broadcast companies rather than companies that combine newspapers and broadcast. The news sent Journal Communications shares up 28 percent and E.W. Scripps shares up almost 11 percent in morning trading Thursday.
Journal Communication's newspaper component, Journal Media Group, will be headquartered in Milwaukee and operate in 14 markets, according to news releases from the companies. It will combine Journal Communications' Milwaukee Journal Sentinel, community publications and digital products with Scripps' daily newspapers, including the Memphis Commercial Appeal, plus community and digital products.
Scripps CEO Richard A. Boehne said in a statement that the move will leave Journal Media Group "financially flexible," and the deal "should unlock significant value as both companies gain efficiency, scale and more focus on the industry dynamics unique to these businesses."
Meanwhile, Journal Communications' broadcast assets will be folded into Scripps, with headquarters remaining in Cincinnati. The company will own and operate TV and radio stations serving 27 markets, making it the fifth-largest independent TV group in the country, according to the releases.
"On both sides of this transaction we feel there is great value, great logic and a great cultural fit," Steven J. Smith, chairman and chief executive officer of Journal Communications, told the Milwaukee Journal Sentinel. Smith will serve as the non-executive chairman of Journal Media.
The move also makes it easier for the different units to make acquisitions and investments, the companies said, at a time when broadcasters are consolidating in order to stay competitive. Companies like Sinclair Broadcast Group and Nexstar Broadcasting Group have been buying up TV stations around the country, for example. Meanwhile, U.S. TV distributors like Comcast-Time Warner Cable and AT&T-DirecTV are merging too. Both of those deals are currently under regulatory review.
"Broadcasters looking for scale," said Michael Kupinski, director of research at Noble Financial Capital Markets. "These types of strategic moves are more and more likely."
Meanwhile, standalone newspaper units without the support of broadcast arms are being put in an increasingly precarious position, said Ken Doctor, a media analyst for consulting company Outsell.
"Clearly newspapers on a financial basis have less and less value, and very little in the way of growth prospects," he said. "It leaves them without a safety net."
Tim Stautberg, senior vice president of newspapers for Scripps, will become president, CEO and a director of Journal Media. Boehne will remain as board chairman, president and CEO of Scripps, the releases said.
The companies say both boards of directors have approved the deal, which is expected to close in 2015. Shareholders and regulators must also approve it.
Scripps shareholders will own 69 percent of the combined broadcasting company and 59 percent of Journal Media Group. Journal Communications shareholders will own 31 percent of the broadcasting company and 41 percent of the newspaper group. Scripps shareholders will also receive a $60 million cash dividend.
Scripps was founded in 1879 and started The Cincinnati Post. It grew into a media conglomerate with TV, print and digital media. The Scripps National Spelling Bee will remain under Scripps' stewardship.
Journal Communications started in 1882 with the Milwaukee Journal, later called the Milwaukee Journal Sentinel, and eventually expanded into TV and other media, concentrated in the Midwest.
Scripps shares rose $2.48, or 12.4 percent, to $22.47 in midday trading. The stock had been down 8 percent since the beginning of the year.
Journal Communications shares jumped $2.47, or 28 percent, to $11.23 in morning trading. Shares had been down 6 percent so far this year.