×

Cramer says these 2 deals are defenses against an increasingly millennial world

  • "Mad Money" host Jim Cramer explains how two recently announced deals are not pro-growth, but defensive moves in a changing economic landscape.
  • Discovery Channel and Scripps Networks Interactive will help each other stay relevant, Cramer says.
  • McCormick buying Reckitt Benckiser's mustard, hot sauce and barbecue sauce brands will help the spice brand bolster its condiment offerings for those cooking at home, Cramer says.

In a market practically devoid of mergers, Jim Cramer was excited to see news of two deals emerge on Tuesday: a potential deal between Discovery and Scripps Networks Interactive and spice company McCormick buying Reckitt Benckiser's food division.

"While the potential Discovery-Scripps deal, at about $10 billion is more than twice the size of the $4.2 billion food transaction... these are happening for similar reasons. Companies, afraid of losing their relevance and their clout, are merging with their peers or rivals in order to produce stronger entities with more appeal to their masters, meaning their distributors and their ultimate customers," the "Mad Money" host said.

To understand why these two deals are so similar, Cramer compared the companies' distribution methods. Just like you walk through aisles of a supermarket to find products, you scroll through cable offerings to find things to watch.

Cramer argued that the center of the supermarket, where slow-growth brands are often stored, is similar to the extra content in your cable bundle that comes with what you already like to watch.

"So along come some willing acquirers who have no choice but to try to break out of their not-so-hot areas and broaden distribution because, ultimately, their markets are challenged by new buyers," Cramer said. "Millennials just aren't interested in canned and bottled food or evergreen programming like their parents were."

Scripps, which owns HGTV and the Food Network, will likely rely on Discovery, the parent of TLC and Animal Planet, to broaden its distribution. However, shares of Scripps surged 16 percent on Tuesday when news broke that rival network Viacom was also considering a bid.

While McCormick's $4.2 billion purchase of Reckitt Benckiser's French's Mustard, Frank's Red Hot and Cattlemen's Barbecue Sauce brands seemed expensive to Cramer, he understood the move.

"As I see it, millennials like adding stuff to food that has spice but doesn't make you fat so you can still look your selfie best. Mustard and hot sauce have a lot fewer calories than, say, mayo or butter," he said. "[The brands] do fit with the company's understanding that these days, people want to stay home and cook using McCormick's spices and a whole slew of condiments."

And while millennials might have little use for HGTV since they are buying fewer homes, they do cook, and while cable is a difficult business, Cramer thinks Scripps and Discovery could just be each others' saving graces.

"So don't think of these deals as growth-makers," Cramer said. "They're defensive deals done to stay relevant in a difficult marketplace where every way that you used to get customers is now up in the air, while merchandise and channel loyalties are at an all-time low. And going forward, I bet we see a lot more mergers of this similar path."

Watch full segment: Cramer unpacks 2 defensive deals

Questions for Cramer?
Call Cramer: 1-800-743-CNBC

Want to take a deep dive into Cramer's world? Hit him up!
Mad Money Twitter - Jim Cramer Twitter - Facebook - Instagram - Vine

Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com