Scripps Networks Interactive Inc., owner of Food Channel and HGTV, gained the most in two years after the trust that controls the company sought a probate court ruling that would clear the way for share sales.
The petition filed in a Butler County, Ohio, probate court may be viewed by traders as the removal of an obstacle to a potential acquisition of Scripps Networks, said Michael Nathanson, an analyst with Nomura Securities in New York. Knoxville, Tennessee-based Scripps Networks disclosed the petition by E.W. Scripps Trust in a regulatory filing today.
Scripps Networks climbed $2.62, or 5.9 percent, to $47.14 at 4:15 p.m. in New York Stock Exchange composite trading, the most since May 4, 2009. The stock has slipped 8.9 percent in 2011.
E.W. Scripps Trust asked the court to confirm that language requiring trustees to maintain voting control of broadcaster and newspaper publisher E.W. Scripps Co. doesn’t apply to Scripps Networks, which was spun off in 2008 as a separate cable-television content company.
If the court agrees, the trustees could seek a sale of the trust’s stake in Scripps Networks, according to Terry Turnipseed, a professor at Syracuse University College of Law and a former estate planning attorney at Covington & Burling LLP.
“They are probably looking for a court to tell them it’s OK to sell the media part of the company,” Turnipseed said in an interview. “When they set up the trust, they probably didn’t envision cable TV and didn’t envision the company splitting into the two pieces.”
The trust dissolves upon the death of Edward W. Scripps’s last living grandchild, who is now 93, according to the regulatory filing. E.W. Scripps Trust holds about 29 percent of Scripps Networks and 28 percent of E.W. Scripps Co. shares outstanding, according to Bloomberg data.
Trustees would likely sell the stake and hold the proceeds in the trust, Turnipseed said. Such a transaction would help diversify the trust’s asset mix available to distribute to beneficiaries after its dissolution, he said.
“From a diversification standpoint, they are probably looking to do that,” Turnipseed said. “The trust has a great deal of stock in the newspaper company, and newspapers aren’t doing so well. So they are probably looking to diversify the trust, which they are required to do.”
Scripps Networks’ board and Kenneth Lowe, chairman and chief executive officer, agree the company should become “more active and more aggressive in returning capital to shareholders,” Chief Financial Officer Joseph NeCastro said May 25 at an investor conference.
“There are some questions still about some of the mechanics around it,” NeCastro said. “It’s not a question of if; it’s a matter of when and how. We don’t need to wait around for a long time for this to be resolved; it will be in the near term.”
The company had $793.7 million in cash at the end of March, according to filings. Scripps will have about $1.24 billion at the end of this year and $500 million in free cash flow in 2012, according to Michael Morris, an analyst at Richmond, Virginia-based Davenport & Co.