John Malone is papering over the challenges facing his television-shopping businesses. The media baron's Liberty Interactive is taking full control of HSN in a $2.1 billion deal. 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.
Investors seem skeptical of those synergies. QVC A shares, the tracking stock for Liberty Interactive's cable and online-commerce operations, were down a little more than half a percent on Thursday. The company plans to operate the networks separately, so most of those projected savings may have to come from renegotiating contracts with cable companies. It helps that Malone's Liberty Broadband is the largest shareholder in the country's second-largest cable outfit, Charter Communications, but the ability to renegotiate is a guessing game.
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The deal follows on the heels of Liberty Interactive's April acquisition of Alaska-based telecom company General Communication. If that's completed as expected later this year, it will replace the QVC tracking stock with one backed by its assets, making it eligible for inclusion in stock indexes and, hopefully, get a higher multiple from investors.
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.
Those facts are likely to be stubbornly resistant to Malone's complex corporate maneuvering.
Commentary by Laura Silva Laughlin, a columnist at Breakingviews.
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