August 1, 2017

Portfolio Announcement: Scripps Network Interactive (SNI)

We are pleased to announce the strategic buyout of one of our holdings: Scripps Network Interactive (SNI).

In July, Discovery Communications and Viacom, two companies we assessed when researching the cable network space, entered negotiations with SNI to purchase the company. In the end, Discovery Communications, agreed to purchase SNI for $90 a share, or roughly a 34% premium over the price of SNI before reports emerged about the potential deal. We have since exited our position, realizing a profit of 59%.

In the final months of 2015 we purchased the shares of SNI, which owns a handful of high quality cable networks, such as, HGTV and The Food Network. This buying opportunity presented itself because the market assumed that “cord cutting” would render the cable network business obsolete.

We, on the other hand, specialize in detail, not platitudes. Our deep study of SNI revealed that they owned the best networks, in the highest demand, by the most valuable demographic for advertisers – wealthy women between the ages of 25 and 54. In addition, their networks are priced well under other popular networks, and the demand for their channels is so great that they are being included in all major “skinny bundles” available today. These skinny bundles are cable packages designed to remove the benefits of cord cutting by bringing consumers the channels they want while removing the costs of the channels they don’t watch. After assessing the company and industry’s underlying fundamentals in conjunction with SNI’s depressed share price, we made a meaningful investment.

As we think back on this investment, we’re reminded of a quote from Bill Gates about technological advancements, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’ let yourself be lulled into inaction”. We think this quote is particularly relevant in today’s investment environment.