NEW YORK — Billionaire investor Paul Allen plans to invest as much as $200 million in Barry Diller’s HSN Inc. to maintain his 11% stake in the company after its $4.075 billion stock-and-cash acquisition of USA Networks, sources said Tuesday.
At the same time, HSN revealed in a Securities & Exchange Commission filing Tuesday that Tele-Communications Inc. affiliate Liberty Media hasn’t yet decided what assets it will sell into HSN to maintain its stake in HSN. Instead, Liberty has committed to invest at least $300 million and has until June 30 to decide whether to invest more, the filing said.
Like Allen, Liberty is making the investment to prevent its existing 30% stake in HSN from being diluted too drastically by the USA deal. HSN is issuing so much new stock to U to pay for USA that Liberty, for instance, would find its 30% stake halved without a new cash investment. The $300 million will take its stake to 17%.
However, both investments from Allen and Liberty would also be followed by an injection of cash by Seagram Co. Ltd.’s Universal Studios, which wants to maintain the 45.8% shareholding it receives in the USA sale.
HSN shareholders will vote on the USA acquisition at the company’s annual meeting Feb. 11 in L.A. The proxy outlined details of the deal ahead of that meeting.
It revealed that:
– USA Network’s earnings fell 12% in the first nine months of last year to $94.3 million.
– Universal TV’s operating profit dropped by half in the three months to Sept. 30, to $15.5 million. The division’s operating income fell 73% to $24 million in the year to June 30, due mainly to the cancellation of “Murder, She Wrote” and “Dream On,” as well as deficits on six new domestic series. (HSN is buying Universal TV as well as USA).
– HSN and Universal each will put $100 million into a joint venture for the international development of USA, Sci-Fi Channel and a new action/suspense channel called 13th Street. The cash contribution will be made over several years.
– Diller received 4.75 million new options under a new management incentive plan in October. His latest options are exercisable at $38.625 a share, while HSN closed up $1.50 Tuesday at $49.25.
The proxy said HSN would emerge from the USA Networks deal with debt of $1.45 billion but expects to reduce that to $990 million through the new equity being injected by various shareholders.
HSN revealed in an SEC filing Tuesday that it hoped to sell “a total of $200 million in additional equity … to a third party or parties in a private transaction,” saying it planned to use the money to reduce debt.
Wall Street sources said Allen was likely to be the investor involved. Allen, who received an 11% stake when HSN bought a controlling interest in Ticketmaster Group last year, approached HSN chairman Diller recently and said he wanted to put in more money to maintain his equity stake from being diluted by the USA deal.
Diller is said to have agreed, but people close to HSN said nothing has been finalized. Neither HSN nor a spokeswoman for Allen would comment.
The filing revealed that Universal is required to put in extra cash to maintain its 45.8% stake under certain conditions, such as the $200 million investment from Allen (or any other such investor). If that occurs within four months of the USA deal closing, Universal has to put in $137 million.
It also has to invest $123 million after HSN converts some bonds to equity in the next two months and $224 million after HSN acquires the outstanding stock in Ticketmaster (as that will involve the issue of HSN stock, which could dilute Universal).
These equity-raisings appear to have been anticipated when the USA deal was first announced. The proxy said HSN would pay for USA Network with the 45% stockholding plus cash that could amount to as much as $1.633 billion — considerably more than the $1.2 billion Universal was reported to be receiving when the deal was first announced in October.
The matching investments will bring Universal’s net cash receipt down to $1.15 billion, close to that original figure. The total may fall further later in the year, if Liberty puts more than $300 million into HSN and U decides to maintain its stake. In this situation Universal is not required to put in more cash, however.
Liberty originally had the option to invest as much as $1 billion to take its stake back to 25%. Last month Liberty execs said the company planned to exercise that option fully, although it would likely pay by transferring assets into HSN.
Liberty execs were scheduled last month to meet with Diller and Seagram CEO Edgar Bronfman Jr. to decide what assets would be acceptable to all involved. Apparently the group could not decide and Liberty has instead agreed to a minimum investment of $300 million, pending further consideration of a bigger investment in coming months. Liberty execs were not available for comment Tuesday.
Liberty and Universal have both given Diller a proxy to vote their stock in future. Tuesday’s SEC filing said that after the deal, Diller would own less than 1% of the equity but would have 77% of the voting power, while the public would own 69% of the equity and will have 23% of the voting power.