Scholastic Closes Investment in 9 Story Media Group, Award-Winning Creator, Producer and Distributor of Premium Children's Content

Rhea-AI Summary

Scholastic (NASDAQ: SCHL) has finalized its investment in 9 Story Media Group, a leading producer of children's content. The transaction, valued at CAD $250 million (approx. USD $182 million), was completed following approval from the Canadian Heritage Minister and satisfaction of customary conditions. This investment allows Scholastic to enhance its content creation and distribution capabilities, leveraging 9 Story's extensive library and production expertise. Scholastic plans to maintain its regular dividend and stock repurchase program, funding the deal through available cash and credit facilities. The collaboration is expected to drive long-term earnings growth and top-line improvements.

Positive

• Scholastic's investment in 9 Story Media Group enhances its content creation and distribution capabilities.
• The transaction is valued at CAD $250 million (approx. USD $182 million), indicating a significant investment.
• Scholastic plans to maintain its regular dividend and stock repurchase program.
• Expected long-term earnings accretion and top-line growth improvements.
• Scholastic will consolidate financial results in a new reporting segment, starting fiscal 2025.

Negative

• The investment required significant capital outlay from available cash and revolving credit facilities.

Insights

Financial Analyst

The acquisition of 9 Story Media Group by Scholastic appears to be a strategic move to strengthen its position in the children’s media market. Scholastic, known primarily for its publishing, is now focusing on expanding its footprint in the multimedia and content production sector. This acquisition allows Scholastic to diversify its revenue streams by leveraging 9 Story’s existing content library and production capabilities. By funding the transaction with available cash and a revolving credit facility, Scholastic is maintaining financial flexibility. The anticipated long-term earnings accretion and reduced capital intensity of production position this acquisition as potentially beneficial for both top-line growth and bottom-line improvements.

Retail investors should note the expected consolidation of financial results in a new reporting segment starting fiscal 2025, which could bring more transparency and clearer financial performance indicators for this new business area. Furthermore, Scholastic’s commitment to maintain regular dividends and its stock repurchase program suggests confidence in the company's cash flow and financial health despite the significant investment.

Rating: 1 (positive)

Market Research Analyst

From a market positioning perspective, Scholastic’s acquisition of 9 Story Media Group is a strategic move in the evolving landscape of children’s entertainment. The demand for high-quality, engaging content for kids has been steadily increasing, especially with the advent of streaming platforms and the shift in content consumption habits. This acquisition allows Scholastic to increase its market share and compete more effectively with other content creators and distributors, such as Disney and Netflix, by leveraging 9 Story’s expertise and established content library.

Scholastic’s strategy of integrating 9 Story’s capabilities into its 360-degree content creation approach means they can create a more immersive and comprehensive experience for their audience. This involves not just books, but also TV shows, digital content and merchandise. Such a comprehensive approach can significantly strengthen brand loyalty and create a more cohesive brand experience for consumers.

Rating: 1 (positive)

Entertainment Industry Expert

In the context of the entertainment industry, this acquisition reinforces Scholastic’s commitment to producing and distributing high-quality children’s content. 9 Story Media Group is well-regarded for its production quality and extensive content library. Scholastic’s ability to leverage this to build global franchises aligns with current industry trends where intellectual property (IP) lifecycle management is key to long-term success. The mention of fostering innovation and creativity across the IP lifecycle suggests a holistic approach to content creation and utilization.

The continuation of leadership under Vince Commisso at 9 Story and Iole Lucchese at Scholastic Entertainment indicates a seamless integration, likely minimizing disruptions and ensuring that both entities' operations and strategic goals are aligned moving forward. Investors should watch how this partnership impacts content output and engagement metrics across Scholastic’s platforms.

Rating: 1 (positive)

Transaction Further Strengthens Scholastic's 360-Degree Content Creation Strategy and Position as a Leading Children's Media Company

NEW YORK and TORONTO, June 21, 2024 /PRNewswire/ -- Scholastic (NASDAQ: SCHL), the global children's publishing, education and media company, today announced that it has closed its previously announced definitive agreement to invest in 9 Story Media Group ("9 Story"), a leading independent creator, producer and distributor of premium children's content, after receiving a satisfactory opinion from the Minister of Canadian Heritage with respect to the transaction, in addition to satisfying customary closing conditions.

The transaction further enhances Scholastic's development, production and licensing interests, expanding opportunities to leverage its trusted brand and best-selling publishing and global children's franchises to build deeper connections with young people around the world across print, screen and merchandising. Scholastic has acquired 100% of the economic interest and a minority of voting rights in 9 Story for CAD $250 million (approximately USD $182 million) from an affiliate of private equity firm ZMC and other selling shareholders.

9 Story Media Group will continue to be led by President and Chief Executive Officer Vince Commisso. Scholastic Entertainment ("SEI") will continue to be led by Iole Lucchese, Scholastic Board Chair and President, Scholastic Entertainment. 

Peter Warwick, President and Chief Executive Officer of Scholastic, said, "We are thrilled to add 9 Story's industry-leading children's content production, distribution and licensing capabilities, extensive content library, and highly talented team to Scholastic's portfolio. Together, we can leverage our combined scale to grow Scholastic's children's franchises, drive book sales and create new opportunities to introduce millions of children to our stories. I'm confident that our shared mission and collective expertise will spark innovation and creativity across the entire IP life cycle, supporting our 360-degree content creation strategy and our opportunity to meet the strong demand for high-quality kids and family entertainment."

Ms. Lucchese added, "Building upon the strong foundation we've developed with the 9 Story team over the past 20 years, we're excited to now participate in the full IP life cycle by combining Scholastic's ability to create IP that kids love with 9 Story's best-in-class ability to produce, distribute and license it. In today's world, it's ever more important that we meet kids where they are, and we look forward to expanding our work with our colleagues to bring kids back to our iconic brands and stories."

Mr. Commisso said, "We're thrilled to start this new chapter and build on our long-standing relationship with Scholastic. Together we will continue to deliver high-quality, engaging content for kids and families, while significantly expanding our joint ability to build franchises on a global scale."

Financial Details

Scholastic has initially funded the transaction from its available cash and its revolving credit facility and anticipates maintaining its regular dividend and its authorized stock repurchase program.

The transaction is expected to contribute long-term earnings accretion, reduce the capital intensity of production and drive substantial improvements in top-line growth and bottom-line results through 9 Story's existing content library, best-in-class production studios, and global distribution and licensing capabilities.  Scholastic expects to provide further details on 9 Story and Scholastic Entertainment's historical financial results and outlook, when it reports its fiscal 2024 fourth quarter results next month. Beginning in the current fiscal 2025 year, Scholastic intends to consolidate both businesses' financial results in a new reporting segment.

Advisors

CDX Advisors acted as exclusive financial advisors to Scholastic.  Baker & McKenzie LLP, Dentons Canada LLP and Mason Hayes & Curran LLP served as Scholastic's legal counsel in the transaction. 

Barclays acted as exclusive financial advisor to 9 Story.  Sidley Austin LLP served as ZMC's legal counsel and Goodmans LLP served as 9 Story's legal counsel.

About Scholastic

For more than 100 years, Scholastic Corporation (NASDAQ: SCHL) has been encouraging the personal and intellectual growth of all children, beginning with literacy. Having earned a reputation as a trusted partner to educators and families, Scholastic is the world's largest publisher and distributor of children's books, a leading provider of literacy curriculum, professional services, and classroom magazines, and a producer of educational and entertaining children's media. The Company creates and distributes bestselling books and e-books, print and technology-based learning programs for pre-K to grade 12, and other products and services that support children's learning and literacy, both in school and at home. With international operations and exports in more than 135 countries, Scholastic makes quality, affordable books available to all children around the world through school-based book clubs and book fairs, classroom libraries, school and public libraries, retail, and online. Learn more at www.scholastic.com.

About Scholastic Entertainment

Scholastic Entertainment brings high-quality content across multiple platforms to audiences of all ages. Among its award-winning productions are the animated series "Clifford the Big Red Dog®" for Amazon Prime and PBS Kids, a live-action "Clifford the Big Red Dog®" feature for Paramount, and Peabody and Daytime Emmy® Award-winning "Stillwater®," an animated series for Apple TV+. Scholastic Entertainment continues to build celebrated brands worldwide by bringing both nostalgic Scholastic properties and exciting new voices to the screen. Some of its recent projects include "Eva the Owlet™," an animated series for Apple TV+ based on the New York Times bestselling Scholastic book series OwlDiaries™, the hit live-action "Goosebumps®" series, which was recently picked up for a second season, with Disney+ and Hulu, and a live-action feature adaptation of "The Magic School Bus" in development with Elizabeth Banks and Marc Platt. Scholastic Entertainment is the media division of Scholastic Corporation (NASDAQ: SCHL).

About 9 Story Media Group

9 Story Media Group is a leading creator, producer and distributor of premium, kids and family-focused content. Its award-winning animation studio, Brown Bag Films, is recognized around the world for best-in-class brands such as "Doc McStuffins®," "Daniel Tiger's Neighborhood," "Octonauts®," "Wild Kratts®," and "The Magic School Bus Rides Again." The company's international distribution arm, 9 Story Distribution International based in Dublin, represents more than 5,000 half-hours of animated and live-action programming, seen on some of the most respected international channels and platforms. Its in-house consumer products division, 9 Story Brands, builds international entertainment brands for kids, with expertise across creative, brand marketing, and licensing. 9 Story's Creative Affairs Group creates, develops, and produces award-winning branded properties using groundbreaking formative research. With facilities in Toronto, Dublin, New York, and Bali, 9 Story Media Group employs approximately 850 creative and corporate staff worldwide.

About ZMC

ZMC is a leading private equity firm comprised of experienced investors and executives who invest in and manage a diverse group of media, entertainment, communications and technology enterprises.

Founded in 2001, ZMC's investment philosophy centers on operational value creation driven by targeted investment themes, deep sector expertise, and strong partnerships with industry and operating executives. ZMC approaches its investments in collaboration with management teams and has a successful track record of actively adding value to portfolio companies. For more information, visit www.zmclp.com.

SCHL: Financial

Forward Looking Statements

Certain statements contained in this press release may constitute "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects", "is expected", "budget", "potential", "scheduled", "estimates", "forecasts", "intends", "anticipates", "believes", or "projects", or the negatives thereof or variations of such words and phrases or statements that certain actions, events or results "will", "should", "may", "could", "would", "might" or "will be taken", "occur" or "be achieved" or the negative of these terms or comparable terminology. All statements other than statements of historical fact, including those that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance, including any synergies expected to be achieved by Scholastic from its investment in 9 Story Media Group, are not historical facts and constitute forward-looking statements involving estimates, assumptions and uncertainties that could cause actual results or outcomes to differ materially from those expressed in such forward-looking statements. Such statements reflect Scholastic's current views and intentions in respect to future events, arrived at based on current information available to Scholastic, and are subject to risks, uncertainties and assumptions as referred to above. Many factors could cause the actual results, performance or achievements that may be expressed or implied by such forward-looking statements to vary from those referred to herein should one or more of these risks or uncertainties materialize, including those risk factors discussed or referred to in Scholastic's disclosure documents filed with the U.S. Securities and Exchange Commission (the "SEC") available on the SEC's website at www.sec.gov, including Scholastic's most recent Annual Report on Form 10-K and quarterly report on Form 10-Q.

SCHL: Financial

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SOURCE Scholastic Corporation

FAQ

What is the value of Scholastic's investment in 9 Story Media Group?

Scholastic's investment in 9 Story Media Group is valued at CAD $250 million (approximately USD $182 million).

How will Scholastic fund the investment in 9 Story Media Group?

Scholastic will fund the investment from its available cash and revolving credit facility.

What are the expected benefits of Scholastic's investment in 9 Story Media Group?

The investment is expected to enhance content creation and distribution, drive long-term earnings growth, and improve top-line results.

Will Scholastic maintain its dividend and stock repurchase program after the investment in 9 Story Media Group?

Yes, Scholastic plans to maintain its regular dividend and authorized stock repurchase program.

When will Scholastic consolidate 9 Story Media Group's financial results?

Scholastic intends to consolidate 9 Story Media Group's financial results starting fiscal year 2025.

Who led the legal counsel for Scholastic in the 9 Story Media Group transaction?

Baker & McKenzie LLP, Dentons Canada LLP, and Mason Hayes & Curran LLP served as Scholastic's legal counsel.

What does the investment in 9 Story Media Group mean for Scholastic's content strategy?

The investment enhances Scholastic's 360-degree content creation strategy, leveraging 9 Story's production and distribution capabilities.