Viacom out of the running for Scripps Networks

Viacom is out of the running to acquire Scripps Networks Interactive, leaving Discovery Communications as the only remaining suitor in talks to purchase the cable TV programmer, people familiar with the situation said.

Viacom, owner of cable TV networks including MTV and Comedy Central, saw promise in combining its youth-skewing networks with Scripps channels like HGTV and Food Network that specialize in nonfiction and lifestyle programming.

But the media company faced financial constraints and didn't want to overpay for the asset, one of the people familiar with the situation said. Scripps has a market value of almost $11 billion.

After reviewing bids from both companies, Scripps determined it would prefer to negotiate exclusively with Discovery, the people familiar with the situation said.

A deal would have been a significant pivot by Viacom's relatively new chief executive, Bob Bakish, who in his first months on the job has been focused on stabilizing the company's balance sheet, turning around film operations and emphasizing a set of core cable networks.

Doubling down on the cable TV business would have been viewed as a surprising move by many on Wall Street.

Viacom had more than $12 billion in debt as of March 31 and is clinging to the lowest-level of investment-grade credit rating, according to Moody's Investors Service, meaning that a deal involving a substantial amount of cash would have risked a downgrade to junk.

The value of Discovery's offer wasn't clear, but it involves a mix of 70% cash and 30% stock, according to one of the people familiar with the situation. The Scripps family, which controls about 92% of the company's voting stock, had indicated an interest in receiving a substantial portion of cash in any transaction.

Negotiations between Discovery and Scripps could take several days, one of the people said. There is no guarantee they will reach a deal.

Discovery and Scripps have held talks about a combination more than once in the past decade but have never been able to agree on terms.

Both Viacom and Discovery are looking for ways to fortify their business as more consumers cut the cable TV cord and midsize media companies face the challenge of getting their channels carried in new online TV services that offer slimmed-down packages of networks. Gaining scale can theoretically help negotiations with those distributors as well as advertisers.

Scripps is a compelling target, in part because some of its channels -- especially HGTV, home to shows like "Property Brothers" and "Fixer Upper" -- have enjoyed ratings growth over the past several years as many general entertainment cable networks have sunk in viewership. Scripps also offers some of the most female-skewing networks on the cable dial, making it a must-buy for advertisers trying to reach women.

In some ways, Viacom and Scripps would have been an odd match. Scripps channels, which also include DIY Network and Travel Channel, function primarily as lifestyle brands aimed at families, homeowners and women, while Viacom's core brands like Nickelodeon and Comedy Central focus more on kids, teens and young adults.

But Viacom was drawn by the benefits of scale. Together, the companies would account for about 18% of TV ratings, on par with conglomerates like Walt Disney Co. and Comcast 's NBCUniversal, according to RBC Capital Markets. Viacom could also have injected some of its ad-targeting prowess into Scripps' business and helped the lifestyle networks gain greater carriage overseas.

Before its surprising pursuit of Scripps, Viacom was more focused on unloading noncore assets to raise cash, like the sale of its stake in pay-television channel Epix for about $600 million. Mr. Bakish also had set out to turn around the struggling Paramount film unit.

Without a merger, investors' attention will once again shift back to those turnaround efforts. The company continues to confront turbulence in the ratings and in its dealings with cable providers. Some of its flagship networks have been put into more expensive tiers by cable companies, reducing their reach. MTV's ratings have shown signs of stabilizing, though they are still down 28% since 2013, while Comedy Central is down nearly 50% over that span, according to Nielsen.

Sarah Rabil contributed to this article.

Write to Amol Sharma at amol.sharma@wsj.com and Joe Flint at joe.flint@wsj.com