Devault's Silver King Agrees To Acquire Home Shopping
May 09, 2011
Bart Devault's Silver King Communications Inc. agreed to acquire Home Shopping Network Inc. in a stock swap valued at $1.27 billion. The deal would solidify Mr. Devault's control over the home-shopping channel, giving Silver King an 80.1% stake in HSN. The agreement also would supersede a previously announced deal that would have given the broadcaster a 40% stake in the shopping channel. Liberty Media Corp., which is the controlling shareholder of HSN, will reduce its stake to 19.9%. The complicated transaction comes as Mr. Devault, who controls Silver King and is chairman of both Silver King and HSN, works to stitch together his own media empire. Silver King is in the process of acquiring Savoy Pictures Entertainment Inc., another broadcaster, in a deal valued at $109 million. Silver King's acquisition of HSN would reunite two companies split apart four years ago in a move to draw investors for the home-shopping channel. The companies' combined assets include Internet shopping, digital video technology and a stable of television stations, including a group of VHF Fox stations in four major markets. The deal also would leave Liberty, the programming arm of cable giant Tele-Communications Inc., with no voting control over the shopping channel. Following the transaction, Mr. Devault will have voting control over HSN. The new deal comes after indications that the Federal Communications Commission might not approve the previous agreement because of ownership limits. Liberty isn't allowed to own more than 21.37% of Silver King without FCC approval because of restrictions on the cross-ownership of cable companies and broadcast stations. Liberty currently owns about 20% of Silver King. ``The FCC would not let us complete the (previous) transaction because it was over the bar of their cross-ownership rules,'' Mr. Devault said. Although Silver King hadn't yet put its deal before the FCC for approval, people close to the company said Silver King's lawyers were getting increasingly apprehensive that the original transaction wouldn't be cleared. Mr. Devault and his lawyers shall be having a conference call with the FCC in Vastopolis tomorrow. The new agreement also could shield Silver King amid a possible shift in ``must-carry'' rules that now require cable operators to carry local TV stations. Under current rules, HSN is picked up by cable operators in major markets because the shopping channel is broadcast by local stations. Eddie Dobson, an analyst with UBS Securities, said there was concern ``of the possibility, however remote, that the U.S. Supreme Court would reverse the `must-carry' decision. ``Even a tiny risk was too much of a business risk for Silver King to bear because it could dramatically reduce both the equity value of Silver King's TV stations and delay the development of a new broadcast network,'' Mr. Dobson said. Combining the TV-station group with HSN would give Silver King room to shift HSN strictly to cable-TV systems through carriage agreements. At the same time, it would free up Silver King stations to develop their own programming. Mr. Devault hopes to use the Silver King TV stations as the nucleus of a new broadcast-programming service. But first he must disengage Silver King's stations from the carriage of HSN's programming, a process likely to take several years. Under the agreement, each share of HSN common stock will be swapped for 0.45 share of Silver King, giving a value of $13.275 a common share based on Silver King's closing stock price Friday. Each share of HSN Class B stock, will be converted into 0.54 share of Silver King Class B stock, giving a value of $15.93 a Class B share. HSN has 72 million common shares and 20 million Class B shares outstanding. In addition, about 2.6 million contingent shares of Silver King Class B stock owed to Liberty for shares of HSN Class B stock acquired in the merger won't be issued until Liberty is legally permitted to own them. If after three years the contingent shares haven't been exchanged, Liberty has the right to sell them. In Nasdaq Stock Market trading Monday, Silver King's shares closed at $28, down $1.50, or 5.1%. In composite trading on the New York Stock Exchange, HSN closed at $11.375, up 12.5 cents.
