Scripps Looking for UKTV Stake - Analyst Blog

According to a recent report by Sunday Times, chances are bright that Scripps Networks Interactive Inc. (SNI) may take over up to 50 percent share of UKTV.  UKTV is a 50-50 partnership between Virgin Media Inc. (VMED) and British Broadcasting Corp. The deal is expected to cost about $560 million and is likely to be announced by end 2010.

Virgin Media wants to sell its UKTV stake as part of a strategy of disposing non-core assets to concentrate on its cable business. The money raised from the sale will be used to repay Virgin Media's corporate debt.

Virgin Media has recently revamped its business model as a pure-play service delivery and carrier company rather than a content provider. In last July, the company sold Virgin Media TV business to British Sky Broadcasting for approximately $234 million.

Scripps Networks is a lifestyle content and interactive services operator. Scripps is on a major expansion drive internationally, taking stakes in numerous channels. Acquisition of the controlling stake in the Travel Channel has established Scripps Networks as the global market leader in lifestyle programming. The company now has three powerful and completely distinct programming categories namely, home, food and travel.  

The company launched its Food Network programs in the U.K through Sky Network. Food Network was launched in other parts of Europe, Africa and the Middle East through Chello Zone, a division of Liberty Global Inc. (LBTYA). Food Network is distributed in Asia through MEASAT Satellite Systems and Ascent Media.

Scripps Networks also entered into an outsourcing deal with London-based Passion Distribution to provide global programming license on behalf of Scripps Networks for its Food Network, HGTV and DIY Network to entertainment channels throughout the world.

We believe the main reason for Scripps Networks' initiative to acquire a stake in UKTV is that a lot of channels of the former exactly match with Scripps Networks' core offerings. These include Lifestyle/Reality, Food programming, Home & Gardens, Nature and Historical, along with UKTV's other offerings such as Comedy, General Entertainment and Crime Drama.

We maintain our long-term Outperform recommendation for Scripps Networks. Currently, it is a short-term Zacks #2 Rank (Buy) stock. We believe both advertising revenues and network affiliate fee revenues will remain strong in the near future due to an improving U.S. economy.

On the other side, we also maintain our long-term Neutral recommendation for Virgin Media. Currently, it is a short-term Zacks #3 Rank (Hold) stock. 

 
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