QVC seeks HSN merger

Barry Diller’s QVC has made a bid to merge with rival Home Shopping Network Inc.

In a stock swap worth an estimated $ 1.3 billion, QVC Network Inc. would consolidate its hold on the $ 2.5 billion home shopping industry and possibly set the stage for a fifth broadcasting network.

QVC, the West Chester, Pa.-based electronic retailer, has been stalking HSN for some time, proposing a merger in March 1992. The move was sidetracked by increasing legal problems at HSN, which is headquartered in St. Petersburg, Fla.

The architects behind the merger are QVC chairman Diller and John Malone, who is chairman of Liberty Media Corp. and CEO of cable powerhouse Tele-Communications Inc. Liberty holds a controlling interest in QVC and HSN.

The merger is being handled by N.Y. investment bankers Furman Selz Inc.

QVC would quickly gain from the merger, primarily in back-office operations and management. Analysts predict some $ 50 million could be reaped in annual savings alone.

“Obviously, there are efficiencies combining the business,” said Diller. “It’s premature to speculate what they might be.”

Diller and Malone over the past two weeks ironed out the details, which will be presented to HSN’s board sometime in the next week. The official proposal, which is a reverse merger, provides for five shares of HSN to be exchanged for every QVC share. There are about 98 million HSN shares outstanding.

QVC stockholders would receive a security entitling them to additional shares of HSN equal to a maximum of $ 130 million. This is being set aside in connection with settlement of several lawsuits against HSN over allegations of self-dealing by former top exex. If those judgments are made, the stock could take a hammering. Once approved by both boards and the Justice Dept., QVC directors would take over.

Concentration concern

However, approval isn’t certain. Liberty acquired a 23% stake in HSN last December, letting that climb to 41.5% last May. It also holds 30.1% of the common stock in QVC. But others may raise objections due to the concentration of power in one area of the cable spectrum (see separate story).

The marriage will make for a substantial force in the nascent interactive shopping business. The combined company would have an estimated $ 2 billion-plus and an operating cash flow of more than $ 300 million. QVC has no debt and HSN is saddled with a modest $ 163 million in borrowings.

But it’s their tremendous reach that will have the cable industry watching. QVC is viewed in 44 million homes, while HSN is seen in 28 million.

Under Diller, who assumed QVC’s chairmanship last December, the company has announced plans to expand to Latin America and Europe and appears to be ready to launch another channel in the U.S. He’s also pushed for a greater variety of shows.

With HSN under his control, Diller will have greater resources. For example, HSN has allied with Macy’s for its own channel.

The two companies have little overlap across the country with cable franchises and Diller will have sufficient clout to broaden offerings, in effect creating channels for specific product categories.

But the real carrot for Diller is 12 UHF stations, which Liberty holds an option to purchase control of, but are owned by HSN chairman Roy Speer. They already carry HSN programming and could easily be a conduit for more. If knit together with the right programming savvy from Diller and HSN chief exec Gerald Hogan, the stations could be the underpinnings for a fifth network.

Speculation has been growing that Diller could use these stations to promote programming in major markets. Though located in small towns adjacent to larger cities, must-carry rules under the new cable act requires cable systems to pick up their signal.

According to Diller, he is making efforts to keep Hogan aboard. “I think he’s a first-rate executive,” he said.

The market reacted favorably Monday to news of the proposed merger, sending QVC shares up nearly 4%, or 2 1/2, to $ 67.75 on 1.8 million shares traded — five times normal volume. HSN’s shares jumped 8%, or 1, to $ 13.625, a new 52 -week high.

“If you believed in the home shopping story before,” said one Wall Street analyst, “then you’ve got to believe in it even more now.”

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