Update: Discovery Buys Out Cox, Gives Up Travel Channel

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Discovery Communications said this morning it will buy out Cox Communications, one of its part owners, for $1.275 billion. Discovery will give Cox full ownership of its Travel Channel, that channel's Website, and a company called Antenna Audio. Said CEO David M. Zaslav, "This proposed transaction will simplify Discovery's ownership structure, further streamline our operations and give the company more strategic flexibility."

It is a big step toward creating a public company that executives like John Malone think will boost it's Wall Street value. Malone will own 66 percent of the company.  

The company said Thursday that partner Cox Communications has agreed to trade in its 25% share in exchange for The Travel Channel, Antenna Audio and $1.275 billion in cash.

DCI has had a hydra-headed structure, with Malone's Discovery Holding company owning 50%, and Cox and Advance Newhouse owning 25% each, but with either of the smaller partners able to veto most major decisions.

The deal cuts the number of partners to two--Discovery Holding with 66% and Advance Newhouse with 33%. The deal clears the way for Advance Newhouse ultimately to roll up its stake into DCI Holding.

Malone, who spun his

Liberty program assets into Discovery Holding two years ago

, has been looking to roll up the interests of his partners into that company.

The deal also sheds a channel whose associated Web opportunities have matured at a time when Discovery is looking to better leverage its brands and its mostly in-house content on the Internet, VOD, mobile platforms, and elsewhere. The travel space has been pretty thoroughly harvested with early entrants like Expedia.com and it would be expensive to acquire one of those transactional sites.

Discovery execs feel there is more opportunity to buy and grow new media assets for its other brands like Animal Planet, for which it recently bought Petfinder.com.

Discovery brought in new President/CEO David Zaslav last fall () to create a leaner, more aggressive company. Streamlining the management structure should help. "This proposed transaction will simplify Discovery's ownership structure, further streamline our operations and give the company more strategic flexibility," Zaslav said in a statement.

For its part Cox gets content it can leverage over its broadcast, newspaper and wirless platforms and much-needed cash to pay down debt. The company went private in 2004 and paid $8 billion for the privilege.

"We invested in Discovery in 1986, and three or four years ago decided we would like to turn that into an operational asset," said Cox spokeswoman Ellen East. She said the deal allows them to gain operational control [of Travel] and pay down some of the debt.

According to one executive close to the deal, Discovery management is convinced that a "clean public company" with a "fully valued" stock would help it acquire new assets and let Wall Street give it full value for its business model of delivering product to which it owns the rights over a global platform to 170-plus countries.

The process of growing and pruning assets at Discovery is ongoing, said a source, but there are no current plans to shed any more assets.

John Malone gets a bigger interest at 66%, but no more control of the new company, since Advance Newhouse still has veto power over major decisions.

Cox President Pat Esser gave Travel Channel President Pat Younge a vote of confidence in a statement Thursday: “We’ve been delighted with our investment in Discovery Communications and with the phenomenal worldwide brand that Discovery has become," he said.

"While we have been very pleased with our financial interest in Discovery, we are excited about the opportunity we now have to convert it into an operational asset and to continue paying down debt incurred in our 2004 privatization."

"Travel Channel is a very successful, growing brand under the impressive leadership of Pat Younge, and we’re excited about the prospects of owning and operating the channel and exploring synergies with other Cox Communications and Cox Enterprises businesses.”

Travel Channel is widely distributed into 88.1 million and Discovery says it is coming off its best-ever quarter in history. It was partly acquired by Discovery in 1997, which bought the remainder two years later. The value of those two deals was $57 million.


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