Liberty Interactive to Buy HSNi for $2.6 Billion
Liberty Interactive Corp. and HSN Inc. (HSNI) have entered into an agreement that will see Liberty Interactive acquire the 62% of HSNi it does not already own in an all-stock transaction.
The deal is valued at $2.6 billion, including debt, or $2.1 billion in equity. HSN and QVC will remain separate brands.
HSNi assets include 40-year-old multichannel retailer HSN (which launched its TV channel in 1994) and Cornerstone, which comprises home and apparel brands.
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Liberty owns shopping network QVC. QVC is the bigger of the two retailers, with more than 8 million customers, while HSNi has more than 5 million, with about 2 million customers overlapping, the companies said. QVC is in 104 million homes and HSN is in 91 million homes, they said.
HSNi shareholders will receive fixed consideration of 1.65 shares of QVCA for every share of HSNi. Former HSNi shareholders (excluding Liberty Interactive) will own 10.6% of QVC Group’s undiluted equity and 6.9% of undiluted voting power when the transaction concludes. The price reflects a 29% premium on HSNi, the companies said: HSNi closed on July 5 at $31.30 and opened today at $42.50 after the deal was announced. After 11 a.m. the stock was at about $40 per share, up about 28%. QVC A shares, at $24.36, was down about a half a percentage point at that time.
The companies project $75 million to $110 million in annual cost savings will be achieved in three years' time.
HSN and QVC carriage agreements with TV distributors have different structures, with HSN paying out at a higher rate as a percentage of revenue, analysts pointed out during a call discussing the deal. Liberty Interactive CEO Greg Maffei and the heads of HSNi and QVC said they would be working with distributors, after the transaction closes, to find the best deals for all parties, including on variables including channel positioning and HD versus SD carriage in addition to payouts. Maffei said the distribution contracts are for relatively long terms so that won't be an immediate issue over the next 12 months. "Our distributors should win when we're winning," QVC CEO Mike George said.
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HSNi headquarters will remain in St. Petersburg, Fla., and will be overseen by George. The acquisition, which awaits regulatory approval, is expected to be completed by the fourth quarter. Approval of the Liberty Interactive stockholders is not required.
QVC has more than 17,000 employees and its ecommerce unit zulily (opens in new tab) has more than 3,000, while HSN has 6,500 employees.
As for why the deal is happening now, Maffei said on the call that the "timing was finally right.” HSN has been trading lower, including on a cash-flow multiple basis, making the deal more affordable to QVC, he said. Management changes at HSNi also played a role: former CEO Mindy Grossman left in May to become chief at Weight Watchers. A year ago, HSN traded in the $50 per share range on NASDAQ.
"The addition of HSN will enhance QVC's position as the leading global video eCommerce retailer. Every year they together produce over 55,000 hours of shoppable video content and have strong positions on multiple linear channels and OTT platforms," said Maffei in a release. "The value of the combined QVC, HSNi and zulily will be further highlighted when later this year QVC Group becomes an asset-backed stock as part of the previously announced split-off of Liberty Ventures."
Liberty Interactive executives said the acquisition of HSNi will increase the scale of the QVC Group and boost cross-marketing “to better engage existing and potential customers.” It also noted HSNi’s lower debt leverage.
“Joining the QVC Group will give us instant access to global consumer markets, a leadership team with deep expertise and a global perspective, and the opportunity to further strengthen our content-based brand portfolios in a changing retail landscape,” said Arthur C. Martinez, HSNi’s chairman of the board of directors, also in a release. “We have both been innovators in a growing and dynamic retail environment with a unique vision of what shopping should be, and as new technologies continue to change our everyday lives, together we can develop the next generation of shopping for the next generation of consumers.”
Cornerstone’s brands include Ballard Designs, Frontgate, Garnet Hill, Grandin Road and Improvements.
Upon closing, the Liberty Interactive board of directors will be expanded to include a director from the HSNi board, selected by Liberty Interactive.
The companies said Allen & Company is serving as financial advisor and Baker Botts LLP is serving as legal advisor to Liberty Interactive. Centerview Partners and Goldman Sachs Group are serving as financial advisors and Davis Polk & Wardwell LLP is serving as legal advisor to the Special Committee of the Board of Directors of HSNi.
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Michael Malone, senior content producer at B+C/Multichannel News, covers network programming, including entertainment, news and sports on broadcast, cable and streaming; and local broadcast television. He hosts the podcasts Busted Pilot, about what’s new in television, and Series Business, a chat with the creator of a new program, and writes the column “The Watchman.” He joined B+C in 2005. His journalism has also appeared in The New York Times, The Philadelphia Inquirer, Playboy and New York magazine.