QVC Inc., the largest seller of jewelry, clothing, computers and other consumer goods on cable television, could soon find itself up for sale as its two largest shareholders consider untangling their complex partnership.
Comcast Corp, the nation's largest cable company with more than 21 million subscribers, owns a majority interest in QVC, but a sizable stake is held by Liberty Media Corp., which also is a large shareholder in Discovery Communications Inc. and the Starz premium movie channels.
As part of the joint ownership, Liberty Media has exercised an exit option that gives Comcast the right to buy Liberty Media's 42 percent stake in QVC. If Comcast declines, Liberty Media has the right to buy out Comcast. If neither occurs, both parties must make their "best effort" to put QVC -- worth about $10 billion -- up for sale to outside buyers.
Liberty Media's intentions are unclear. The company did not say why it exercised its exit option, but speaking at an analysts' conference yesterday morning, Comcast Treasurer John R. Alchin said there was "no element of surprise" in the Liberty Media decision. Alchin said Liberty Media had until April 15 to exercise the option. Liberty Media did not return a call yesterday seeking comment.
Though the potential sale of QVC would be an isolated deal, it is interconnected with several larger relationships among companies and media magnates and could have far-reaching implications. Liberty Media is active on a number of dealmaking fronts, recently increasing its ownership in a Japanese telecom company while it considers buying DirecTV Inc., the United States' largest home satellite television service. Some analysts said the company may simply be trying to keep its options open.
QVC has been a programming success for Comcast, generating a healthy cash flow, but the cable giant may have difficulty raising the money to buy out Liberty Media. The cable company is under pressure to reduce debt after its recent purchase of AT&T's cable unit.
If Comcast cannot afford the price, then Liberty would have to decide whether to buy out Comcast's share, which could cost Liberty $5 billion to $6 billion, said Tuna Amobi, media analyst for Standard & Poor's Investment Services. Complete ownership of QVC may be attractive for Liberty Media if it is seeking to expand its home-shopping interests, Amobi said. Liberty Media owns 20 percent of USA Interactive Inc., parent company of the Home Shopping Network, QVC's biggest rival. USA Interactive chief executive Barry Diller and Liberty Media chief executive John C. Malone speak regularly.
Diller's Home Shopping Network reported $1.61 billion in 2002 revenue in 2002, up from $1.57 billion in 2001, and is seen in about 80 million U.S. homes. Diller once owned QVC. USA Interactive declined to comment yesterday.
Amobi suggested that Liberty Media may want to buy QVC to use the cable channel's hefty cash flow as a shield against Liberty Media's tax losses. In 2002, QVC brought in $4.4 billion in revenue, up from $3.9 billion the year before. It is seen in 84 million U.S. households.
But Liberty Media may not want to buy. Its decision to exercise the exit option comes at a time when it, like Rupert Murdoch's News Corp. and SBC Communications Inc., is considering whether to bid for DirecTV. The satellite television company, owned by General Motors Corp.'s Hughes Electronics Corp., has been seeking a buyer for two years. DirecTV turned down a News Corp. offer in October 2001, instead accepting a bid from EchoStar Communications Corp., DirecTV's chief satellite rival. But the merger was scuttled on antitrust grounds by federal regulators.
Liberty already has some satellite holdings, including less than 1 percent of Hughes and a minority stake in Astrolink International LLC, which is building a high-speed Internet service that would be distributed via satellite.
Now that Liberty has exercised its option, it and Comcast have 30 days to put a value on QVC. If the companies cannot agree on QVC's value, it will be appraised by outside parties, which could take months, Alchin said.
After the appraisal is concluded, Liberty and Comcast might agree to leave their ownership of QVC unchanged or "concoct some other transaction that was not even contemplated in the agreement," Alchin said.