Scripps stock hits 1-1/2 year high after Sinclair discloses 8.2% stake

Shares of TV station operator E. W. Scripps (SSP) hit a one-and-a-half-year high after larger rival Sinclair (SBGI) disclosed that it has taken an 8.2% stake in a push to buy out the company and unlock more than $300M in synergies.

SSP stock rose as much as 45.7% to $4.43 on Monday, and SBGI is up nearly 8%. SSP rose nearly 39% this year as investors welcomed progress on its sports strategy. Peers in the sector, Nexstar (NXST) and Gray Media (GTN), are also up in reaction to the news.

The Scripps acquisition would add more than 60 local TV stations, which are spread across over 40 markets, to Sinclair's portfolio of 193 television stations, which cover more than 100 U.S. markets.

The broadcast industry is on a decline in the U.S. as streaming continues to dominate with more than 40% of total TV viewership, led by YouTube (GOOG) (GOOGL) and Netflix (NFLX), according to data from Nielsen.

Analysts at Wells Fargo view M&A activity in the broadcast sector as "a driver of value creation."

The research firm noted that while Sinclair's approach was not hostile, they think the stake disclosure is absolutely intended to increase pressure on Scripps' controlling shareholders via the publicity.

"We'd guess the biggest point of contention is not whether to merge, but how to share the value. We currently estimate that SBGI's STG is ~60% of pre-synergy EBITDA, and using NXST's EV/EBITDA multiple implies it's also ~60% of the combined equity value," Wells Fargo said on Monday. "Both SBGI and SSP are controlled companies, and we believe each has engaged advisors. SSP could argue for a modest premium to relinquish control. Employee protection from cost synergies could also be a major sticking point."

Guggenheim analysts also think the biggest hurdle to the Sinclair-Scripps combination are social issues like family control, pro forma ownership structure, and board representation.

Over 8.61M Scripps shares changed hands by 1:15 pm ET on the Nasdaq, 12.5x its three-month average trading volume.