Friday, July 7, 2017

John Malone's QVC To Acquire HSN

The nation’s two best known home-shopping TV operations, QVC and Home Shopping Network, are set to come together under an all-stock deal valued at approximately $2.1 billion put together by John Malone’s Liberty Interactive Corp.

Variety reports that Under the terms of the deal, Liberty Interactive, which owns QVC and already controls a 38% stake in HSN, will combine the two outlets. Shareholders in HSN will receive 1.65 shares of QVC’s Series A stock for each share of HSN. The companies said the offer values each share of HSN at $40.36, or a 29% premium, based on Wednesday’s closing stock prices.

After the deal, slated to close in the fourth quarter, Liberty Interactive said it planned to spin off its cable-TV operations into an independent company that will be called QVC Group. That unit will include  Zulily, a flash-sale site QVC purchased in 2015 for $2.4 billion, as well as the Cornerstone unit of HSN,  which includes brands such as  Ballard Designs, Frontgate and Grandin Road.

According to Reuters, Malone is papering over the challenges facing his television-shopping businesses. Bringing the cable retailer under the same corporate umbrella as his QVC unit makes sense, and investors should end up with something more valuable than a tracking stock. But a complex share swap won’t solve the problems plaguing the two networks.

Malone has picked a good time to pounce, tactically. HSN’s stock had fallen by more than 50 percent in the two years through Wednesday, lowering the acquisition cost and making the 29 percent premium attractive to the target’s investors. Liberty is paying the premium to holders of the 62 percent it doesn’t already own, which amounts to roughly $300 million. Even if management achieves only half its targeted $100 million in cost savings, once taxed at 35 percent and capitalized they will more than pay for the deal.

The company will need all the help it can get. Both QVC and HSN face pressure from the changes in shopping habits driven by Amazon and other e-commerce players. Revenue at Liberty Interactive and smaller HSN have effectively flatlined for the past three years, and their profit fell by 26 percent and 30 percent, respectively, last year. Home shopping’s share of the overall U.S. retail market has fallen a quarter since 2011, according to data from Euromonitor.

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