NEW YORK — Tele-Communications Inc. is contemplating selling assets worth $1 billion to Barry Diller’s HSN Inc. to pay for an increase in TCI’s stake in HSN to 25%, sources said late last week.
Such a deal could dramatically change the face of HSN once again. Sources say neither TCI nor HSN has decided which assets will be sold but Wall Streeters speculate it could include TCI’s Encore/Starz movie channel, or TCI’s holding of Fox Kids Worldwide preferred stock or TCI Music.
The discussions were prompted by the dilution of TCI’s stake in HSN that will follow Seagram Co.’s sale of Universal Studio’s television business to Diller’s company. Seagram is getting $1.2 billion in cash and a 45% stake in HSN, which dilutes TCI’s existing stake in HSN from 30% to 15%.
As a result, HSN gave TCI the option to increase its holding back to 25%, using either cash or assets agreed upon by both HSN and Seagram. Ironically, sources close to the deal say that if TCI does go to 25%, U’s cash component in the deal will end up being reduced by roughly $200 million to ensure the HSN stock it receives continues to be 45% of the total.
Last month, execs at TCI’s programming affiliate, Liberty Media, which holds the HSN stake, indicated Liberty would likely raise its stake only to 20% because going up to 25% would cost too much. Liberty CEO Robert Bennett noted on a call with Wall Street analysts early last week that going to 25% would cost Liberty $1 billion while going to 20% would cost $425 million.
TCI appears to be pushing to go all the way, however. TCI president Leo Hindery told a conference call of analysts late last week that he would like to increase Liberty’s stake to 25% and he was looking at ways to pay for it. People close to the situation say TCI will likely choose to sell an asset, rather than pay cash, and they say HSN and TCI are trying to decide which asset.
Hindery said he was meeting with Seagram CEO Edgar Bronfman Jr. over the weekend to discuss the issue. A Liberty spokeswoman confirmed Hindery’s comments, cautioning that nothing had been decided yet, while a Seagram spokesman declined comment.
Picking which asset to sell might not be too easy. Most of Liberty’s assets are partly owned interests, where the partner might object — while Diller would likely be keen to get his hands on TCI’s 49% of Discovery Communications, for instance, the other shareholders in Discovery would probably object.
Liberty does have outright control of its premium movie channels Starz/Encore, however, which analysts value at about $650 million. This might be attractive to Universal, which, unlike Warner Bros. and Paramount, does not have a premium movie channel in its corporate family.
Alternatively, Liberty now controls TCI Music, which includes some music cable networks that could fit with USA and HSN’s Ticketmaster, analysts say.
Liberty execs confirmed last month that one asset under discussion was Liberty’s $345 million preferred stockholding in Fox Kids Worldwide. Analysts say TCI could transfer several assets, so the Fox Kids stake could still be a contender.
Hindery told analysts the asset doesn’t have to be a Liberty asset but could come from any one of TCI’s companies, which widens the net.