Deal puts cable firm on track for growth
The transformation of Discovery Communications Inc., once a sprawling and sleepy television operation, should rev up next year as it becomes a publicly traded company under a deal announced Thursday by cable mogul John Malone and Advance/Newhouse Communications.
“This is the transaction that we have been expecting to occur,” said Richard Greenfield, media analyst for Pali Research. “Now Discovery will be a true operating company with an understandable structure rather than a complicated holding company that scared many investors away.”
Discovery Communications, based in Silver Spring, Md., has a presence in more than 150 countries and such popular channels in the United States as Discovery, TLC and Animal Planet.
Although long planned, the change in ownership finally gained traction last spring when the Malone-controlled Discovery Holding Co. and Advance/Newhouse bought a 25% stake in Discovery Communications from another original investor, Cox Communications Inc.
That gave Discovery Holding Co. two-thirds of Discovery Communications. The remainder was held by Advance/Newhouse Communications. Discovery Holding is publicly traded, whereas Advance/Newhouse is privately held, complicating the ownership of Discovery Communications. The arrangement was further muddled by the fact that neither party had voting control, making it difficult for Discovery Communications to expand.
“This will make us more competitive and agile in the marketplace,” Discovery Communications Chief Executive David Zaslav said in an interview. “We will have a currency that we can use for strategic acquisitions and a currency to attract great talent.”
Zaslav, a former top NBC Universal executive, has been shaking up Discovery Communications since he took the helm in January. He has shuffled executives, shed the company’s retail operations, renamed cable channels and bought such assets as HowStuffWorks.com. Discovery also has benefited from a ratings renaissance at its core channels Discovery and TLC.
“Discovery has made a pretty remarkable turnaround financially,” said Derek Baine, cable analyst for research firm SNL Kagan. “This will make it a lot easier for Discovery to make acquisitions because they will have direct access to the company’s cash flow. It has been difficult for them to make acquisitions with the ownership structure that they have now.”
The tax-free deal is expected to close in the second quarter of 2008. Advance/Newhouse would receive shares that would be converted into one-third of the outstanding shares of a new Discovery Holding Co., which would become the publicly traded company that would own 100% of Discovery Communications.
“We have done very well together, but we think this is a great opportunity that will help Discovery grow,” said Robert Miron, CEO of Advance/Newhouse. “We believe this is a wise time for the change.”
Zaslav, who is expected to remain as Discovery’s CEO, declined to say what acquisitions they might be planning.
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