QVC, Home Shopping Network to merge in $2B deal

In a bold bid to become more relevant, West Chester-based TV-shopping network QVC will merge with the St. Petersburg, Fla.-based Home Shopping Network to better compete against the likes of Amazon and Walmart as more consumers use smartphones and other devices to find the best deals online.

The combined company will make the third-largest U.S. online and mobile retailer, and will be large enough to be listed as one of the S&P 500 stocks, according to QVC chief executive Michael A. George.

QVC's owner, Liberty Interactive, plans to acquire the 62 percent of HSN it doesn't already own, hoping to strengthen its legacy TV channels. The goal is to cut costs yet be more innovative, enticing shoppers with more brands and products. Liberty, built by cable-TV pioneer John Malone, will be renamed QVC Group after the deal's scheduled closing later this year. George will run both brands, which will continue to operate separately.

The companies plan to cut at least $75 million in yearly spending by eliminating duplication in management, administrative, and information technology spending, Liberty Interactive CEO Greg Maffei told investors on a conference call. Even with the savings, analysts noted it could take several years to raise profit margins. "Three to five years, that's a pretty long horizon," noted Citigroup analyst Jason Banizetl. George said the companies were making conservative projections but results could improve sooner.

QVC employs around 2,200 at its headquarters and QVC Studio Park in West Chester, and more than 150 at a warehouse near Bethlehem for Zulily, the Seattle-based mobile-shopping retailer that QVC bought two years ago to invigorate its online sales. "It is too early to speculate on effects from the consolidation," said QVC spokeswoman Jane Crawford. QVC also has a warehouse near Lancaster with 1,500 workers.

HSN was the original U.S. home-shopping channel, founded in 1977. It now derives half of its revenue from e-commerce, featuring more than 50,000 products on its website.

QVC is now larger, with around 8 million regular customers and 183 million boxes shipped last year, compared with 5 million customers and 50 million packages for HSN. The companies estimate the shopper counts include 2 million people who are active at both companies.

Combined, they expect sales to total $14 billion a year. Employment would total 27,000, before merger-related layoffs.

Both QVC, which is especially dependent on women's clothing, and HSN, which sells more electronics and operates the Cornerstone group of retail brands, have lately faced weak sales and have cut jobs as the three QVC and two HSN channels faced stiff competition, especially from the retailing juggernaut of Amazon.

HSN boss Rod Little told investors that his company "was not happy with its performance" and hoped that combining with QVC would make the business stronger.

QVC's George said the combined company would be "well-positioned to help shape the next generation of retailing." The acquisition would allow the company to boost its scale, spur development of its mobile and online platforms, and optimize its programming, cross-marketing, and finances.

Plans for the rivals to merge were proposed and then canceled in the past, and rumored at times over the years. Maffei said it was time to do the deal because Liberty's share price has lately strengthened relative to HSN's.

The all-stock purchase of HSN is valued at $2.1 billion, or around $40.36 a share. That's a nearly 30 percent premium to HSN's recent stock value, but far below the company's 2015 high of over $74 a share. Liberty would also take on around $500 million in HSN debt. Liberty initially rose in trading Thursday, but fell 30 cents, or 1.2 percent, to close at $24.16.

HSN stock jumped $8.40, or 26.8 percent, to $39.70.

Joseph N. DiStefano 215.854.5194 JoeD@phillynews.com @PhillyJoeD