October 23, 2007 5:07 pm

E.W. Scripps likely to review newspaper assets in Q308; trust structure does not preclude sale options

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E.W. Scripps, the Ohio-based media company planning a spin-off, will likely review its newspaper assets for a possible sale in Q3 2008, a source familiar with the situation told mergermarket. The company ownership structure, and the family trust that in effect controls the company, would not necessarily be an impediment to such a sale, the source said.

The source and a major company shareholder both said selling the cable assets would not make much sense, as they currently are the economic engine of Scripps, and that the eventual divestitures of Shopzilla and uSwitch are possible. The shareholder said that before divesting Shopzilla and uSwitch, Scripps would need to “fix” them first. The source familiar with the situation said he “generally agreed,” with the shareholder’s assessment as to Shopzilla and uSwitch. Both said that an alternative would be for Scripps to cut back on investments in those properties and attempt to sell them with what would be the resultant better appearing cash flow.

The Edward W. Scripps Trust that in effect controls the NYSE-listed company and elects a majority of its directors has been viewed by many as an impediment viewed to a sale of the newspapers. There has been disagreement over the interpretation of the trust’s provisions, whether it means that it must control the company or all of the newspapers in it. Each interpretation could be read to stand in the way of a takeout or sell-off of all of the newspapers.

The source familiar with the situation likened the situation to that of the Chandler Family Trust, which prior to its 2000 sale to Tribune controlled Times Mirror and was thought to prevent a sell-off of that company’s newspapers. “There could very likely be a sale structure to deal with these issues that would not violate such a trust, as that deal shows,” said the source.

Another source, one familiar with the 2000 Tribune/Times Mirror deal, agreed, saying, “There more than likely should be a way for there to be family control provided for in the deal structure, if necessary, and still have a deal with control acceptable to a buyer as was the case with Tribune and Times Mirror.”

According to regulatory filings, the Edward W. Scripps Trust will terminate upon the death of 89-year-old Texan Robert K. Scripps, the last of five identified grandchildren of Edward W. Scripps. Upon termination of the trust, its assets are to be divided among 27 grandchildren of the father of Robert and Charles Scripps, according to the regulatory filing. Their shares in the company, which are controlling, would be required to be offered for sale to other family members and the company, before being sold publicly, according to the filings.

In the short term, the source said, if the grandchildren are in agreement, this will keep the family control of both E.W. Scripps Company, whose post-spin-off assets will include daily and community newspapers in 17 US markets and 10 broadcast television stations, and Scripps Networks Interactive whose assets will include television networks HGTV, the Food Network, Fine Living, Great American Country, and online shopping services Shopzilla and uSwitch.

What agreement there is between the 27 grandchildren on these issues remains to be seen, said the source. The source noted that the inability of the family to agree, as the numbers increase, could go down. The source noted a period of disagreement among family members of the founder of Freedom Communications that culminated in 2003.

There is likely to be interested buyers for Scripps’ cable assets, said an industry banker familiar with those assets. However the banker went on to say that such a sale would be unlikely until the spin-off is completed, which is scheduled to be in the third quarter of 2008. The banker said that in the event of a sell-off, Scripps was not likely to sell its television affiliates as a group to private equity, as it is thought that individual sales to strategics could likely yield greater value. The source said that any sales of newspaper assets may have to go the same route, given the current market for the sale of such assets, but noted that individual groups and private equity have also recently participated in purchases of individual newspapers or newspapers clustered in a geographic area.


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