TV Shopping Rivals to Combine Forces -- WSJ

By Suzanne Kapner Features Dow Jones Newswires

QVC, HSN try to keep pace as consumers turn to smartphones for impulse purchases QVC, Home Shopping Network try to keep pace as consumers turn to smartphones

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This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 7, 2017).

Longtime rivals QVC and the Home Shopping Network have agreed to merge as two retailers built around cable television adapt to a world where impulse buying and video watching is moving to smartphones.

The companies, famous for pitching products such as the Miracle Mop and George Foreman grill, said Thursday they have agreed to combine in an all-stock transaction valued at about $2.1 billion. QVC parent Liberty Interactive Corp., controlled by cable magnate John Malone, already owns a 38% stake in HSN.

While the home-shopping channels were early adopters of e-commerce and don't face the same pressures as chains with brick-and-mortar stores, they are increasingly competing for consumer dollars with Amazon.com Inc. QVC's sales in the U.S. have declined in each of the last three quarters. Revenue at HSN has declined for six straight quarters, and the company has been searching for a new CEO.

QVC Chief Executive Officer Mike George, who will run the combined company, said the retailers face a "tough environment" but that QVC and HSN are different from typical e-commerce companies, which tend to be more transactional. "Our customers engage with us most days over TV or digital platforms," he said. "They form a connection with the hosts of our shows."

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The merger gives the business greater scale to invest in emerging technologies, Mr. George said. While the combined companies will operate 17 cable channels around the globe, both QVC and HSN also sell online and stream their videos over the internet. The combined entity will have annual revenue of about $14 billion, of which slightly more than half comes from e-commerce.

"Liberty had been interested in buying the rest of HSN for years, even before the retail armageddon," said Victor Anthony, an analyst with Aegis Capital. But for a long time, HSN's shares traded at a premium to Liberty's, making a deal untenable, Mr. Anthony said. In the last month, however, the stock multiples inverted.

HSN, which is more heavily dependent on the U.S. market and has about a third as much revenue as QVC, has been struggling with shrinking sales. In April, the company said its longtime CEO Mindy Grossman was leaving to run Weight Watchers International Inc.

HSN launched the idea of home shopping in 1977, when it began airing programming that showcased inventors, entrepreneurs and designers plugging their wares. Its better known personalities include Miracle Mop inventor Joy Mangano, who got her start on QVC before switching to HSN, and celebrity chef Wolfgang Puck.

QVC, which was founded in 1986, has focused on fashion and beauty. Among the beauty labels it helped to launch are Philosophy, BareMinerals and Josie Maran.

Together, they have 23 million global customers, including about 2 million customers that shop on both QVC and HSN. The business model counts on getting just enough viewers who may be tuning in throughout the day or unwinding at night to make impulsive purchases. The majority of QVC customers are women who on average each make about 25 purchases a year.

"There are some clear advantages to scale," Mr. Anthony, the analyst said. "They can negotiate better pricing with suppliers, better shipping costs and other back-end synergies."

Cord-cutting, or the canceling of home cable packages, also poses a risk. But QVC said consumers who are opting out of pay-TV packages -- generally younger and lower-income consumers -- aren't its core shoppers. The company also said it increasingly is reaching customers on different types of devices.

"We see a role for engaging live video experiences," Mr. George said. "People are consuming more video content than ever...not just on TV, but on tablet and mobile devices."

Following the merger, Liberty plans to spin off its cable operations into an independent company and rename itself QVC Group. The business will include the flash-sale website Zulily, which QVC bought for $2.4 billion in 2015, and HSN's Cornerstone division, which includes home retailer Ballard Designs among other brands.

QVC, which has its main offices in West Chester, Pa., expects to get cost savings of $75 million to $110 million annually from the deal in three to five years. HSN's headquarters will remain in St. Petersburg, Fla., and Mr. George said it would continue to operate as an independent brand.

Under the terms of the proposed deal, HSN shareholders will receive 1.65 shares of QVC's Series A stock for each share of HSN. Based on Wednesday's closing prices, the companies said the offer valued HSN at $40.36, or a 29% premium.

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com

(END) Dow Jones Newswires

July 07, 2017 02:47 ET (06:47 GMT)