Local broadcaster E.W. Scripps Co. is jumping into the national television business by buying Ion Media for $2.65 billion in a deal backed by Warren Buffett’s Berkshire Hathaway.
Berkshire Hathaway is investing $600 million in Scripps to help pay for Ion and make a bet on free over-the-air television.
Scripps already had a national presence with Katz Networks, which runs channels like Bounce and Court TV. Ion reaches 96% of U.S. homes with stations in 62 markets and 124 affiliated stations. At this point its signals are carried on cable via must carry and it doesn’t benefit from lucrative retransmission consent fees.
“This evolution of Scripps’ national television networks business, through the combination of Ion, the Katz networks and Newsy, repositions the company in the television landscape,” said Scripps president and CEO Adam Symson.
“With its strong revenue growth, high margins and significant cash flow, Ion will make Scripps a more powerful and durable media business with significant near-term benefit as well as long-term value. Ion Media is a distribution double threat – carried on cable and satellite through must carry while also capitalizing on cord-cutting and the growth of free over-the-air broadcasting,” Symson said. "This transaction is another in a long list of Scripps’ transformative moves to where we see opportunity for growth and to benefit from the evolving media landscape."
The acquisition makes Scripps the largest holder of broadcast spectrum at a time the industry is transitioning to ATSC 3.0, which could create new business models.
Scripps will divest 23 Ion stations to bring the company into compliance with FCC regulations. Scripps has agreed to a transaction with a buyer, which has agreed to maintain Ion affiliations for the stations. Those stations will also carry the Katz networks in markets where they are available.
"As the media industry continues its rapid evolution, Berkshire Hathaway is fortunate to partner with this management team and the Scripps family, who have successfully anticipated the future of media for over a century,” said Ted Weschler, the Berkshire Hathaway officer responsible for the investment.
Scripps said the acquisition will produce $500 million in synergies, most of which will be realized by applying Scripps’ contractual arrangements over the next six years.
The company also expects national ad revenue to grow in the low double-digit range in 2021.
Analyst Steven Cahall of Wells Fargo called the announcement the deal of the year.
“While we've historically liked Scripps management and assets, investors have found the portfolio too in between: not enough National (relative to the portfolio) to be a growthy stock thesis, and not enough Local scale to get the cash profile of its peers,” Cahall said.
“The Ion deal is undoubtedly transformative as it nearly doubles Scripps enterprise value and the mix of stations + a national net ties everything together like a media bow,” he said. “Bringing Berkshire Hathaway in is also about the best equity market seal of approval there is. We expect investor interest in Scripps to accelerate on the back of this deal and should push Scripps' strong operating performance and proactive strategy into the limelight.”
