LOS ANGELES (AP) -- Shares of Scripps Networks Interactive Inc., the operator of the pay TV channels Food Network and HGTV, rose Wednesday following a report that rival channel owner Discovery Communications Inc. had discussed making a bid for the company.
THE SPARK: Variety magazine reported Tuesday that Discovery's board of directors had discussed the matter at a meeting earlier that day. While Scripps shares jumped 17 percent in after-hours trading, they rose about 7 percent on regular Wednesday from Tuesday's closing price as analysts dissected the benefits of a possible deal.
THE ANALYSIS: Analysts were mixed on the prospects. Citi analyst Jason Bazinet said he didn't think a deal was likely because it would only make sense if Discovery felt it could expand Scripps channels into international markets despite its focus on the U.S.
MoffettNathanson analyst Michael Nathanson said in a research note Wednesday that the combination could provide $250 million in annual cost-savings but would be unlikely to add negotiating leverage in contracts with distributors.
"Absent live sports and mass-reach networks, this combination may not generate the necessary fear to force distributors to pay up for these channels," he wrote.
On the other hand, Evercore analyst Alan Gould did expect a combination would give it a better hand in bargaining based on their "sheer scale" and share of about 18 percent of the pay TV viewing audience in the U.S. However, he said such leverage would take several years to materialize and he kept his price target on shares at $84 with an "equal weight" rating.
THE BIG PICTURE: Scripps Networks runs TV networks including DIY, Cooking Channel, Travel Channel and Great American Country. Discovery runs channels like Discovery, TLC and Animal Planet. It is co-owner of Oprah Winfrey's channel, OWN. Scripps Networks is a separate company from the newspaper publisher The E.W. Scripps Co.
The market has speculated about the sale of Scripps Networks ever since the death of the last surviving grandson of founder Edward W. Scripps in October 2012. The death of 94-year-old Robert P. Scripps dissolved a trust that holds 90 percent of the voting stake in the company and put it in the hands of the next generation of the family.
SHARE ACTION: Scripps Networks shares rose $5.08, or 6.8 percent, at $80.33 in afternoon trading Wednesday after rising as high as $81.27 earlier. FactSet says that is an all-time high. Shares had risen 30 percent through Tuesday since the start of the year.