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Discovery and Scripps Collaborate on a Hit

The perception may be that Discovery Communications Inc. and Scripps Networks Interactive Inc. are merging from a position of weakness, when in fact rarely does a deal this large possess such clear strategic and financial merit. That's reason enough for investors to stay tuned.

The TV network operators announced on Monday that Discovery will acquire Scripps for $90 a share in cash and stock, implying a total transaction value of $14.6 billion. It ranks as the fifth-largest U.S. acquisition of the year (though others may be coming that will bump it down). Scripps shareholders couldn't have asked for better terms: They'll receive 70 percent of the purchase price in cash upfront and the rest in Discovery class C common stock. It's a healthy 32 percent premium to Scripps's average closing price for the 20 trading days through July 18, before word of an imminent transaction leaked. (As expected, shares of Discovery fell, dropping more than 5 percent in early trading on Monday.)

There's been a potentially destructive trend the last couple of years of buyers patently overpaying for acquisitions, blinded by their need to boost stagnating revenue and caught up in the excitement surrounding megadeals that have engulfed industries from media and packaged food to tech and pharmaceuticals. On the contrary, Discovery -- which has the...