Discovery's Store Closure Doesn't Sound Like a Buyout is Coming

Discovery Communications (DISCA-NASDAQ) is announcing that it is closing the rest of its mall based stores to focus more on its own e-commerce branding and to focus on ‘other retailer’ distribution channels.  This will cut off 25% of its workforce or about 1,000 workers.  It also is increasing its Animal Planet brands with Toys R Us and will look for more television sales.  So it is closing 103 mall-based Discovery stores.  It claims that it has 12 million unique visitors to its DiscoveryStore,com e-commerce site and has relationships through Amazon.com and eBay.  The 2006 e-commerc growth was a record growth and sales are up 144% year-to-date.  This is part of the strategic review that was led by J.P.Morgan, and it is hiring Gordon Brothers Group as an advisory and restructuring to help with the closures and liquidations. 

Jim Cramer on a May 8, 2007 Mad Money episode said this could be a buyout target, but it sure doesn’t sound and act like a buyout target here.  There is also a financial structure that is more complicated than elsewhere.  The company sin’t specific on charges but this is going to blow-out cash flows and lower profit hopes farther out.  That is not the sort of issue that sounds like a buyout candidate in a flood of other "value companies" that can be acquired for cash flows.  Maybe a deal is possible, but this doesn’t sound like that great of takeover material on the surface.

Jon C. Ogg
May 17, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.