Home shopping network ValueVision International Inc. last
week agreed to merge with infomercial producer National Media Corp., tying up a deal that
began as a hostile-takeover attempt in 1994.
The deal would enable ValueVision -- which has about 12
million cable subscribers, but a scant following on Wall Street -- to more than double in
size and to diversify from its home shopping base.
ValueVision essentially is buying a complementary business
that is in need of cash, Media Group Research analyst Mark Riely said. ValueVision has
plenty of transaction-processing capacity, and it can wring savings on those services from
National Media.
National Media had suffered from some acquisitions that
didn't work out and from a lack of product, Riely said. 'It's a hit
business, and they went through a dry spell,' he said.
National Media -- which produces pitches for fitness guru
Susan Powter and which hawks the Ab Roller Plus -- also can try out infomercial concepts
on ValueVision, minimizing the risks of developing infomercials and buying costly
television time, Riely said.
ValueVision said it will rebrand its shopping channel with
National Media's Quantum Television name.
The merger caused little stir among investors.
ValueVision's share price dropped 38 cents, to $3.50 from $3.88, in light trading
last Monday, when the merger was announced. National Media's stock price fell 18
cents, to $3.25. ValueVision had been exploring a range of potential strategic moves,
possibly including a sale, and investors may have been disappointed that ValueVision
wasn't selling out, Riely said.
The history of the union goes back to 1994. ValueVision at
that time offered about $150 million for National Media, but it backed away after getting
a closer look at National Media's books. National Media sued, and the two companies
later settled.
'But the logic for the combination was really always
there,' Riely said.
The tax-free combination will end up with ValueVision
owning 55 percent of the combined entity and National Media shareholders owning the rest.
National Media holders will receive one share of the new company for each share that they
now hold, while ValueVision holders will get 1.19 shares for each current share. They hope
to close the deal sometime in the second quarter.
The combined company -- which has not yet been named --
will generate about $500 million in revenue in 1998.
As part of the deal, ValueVision will lend National Media
$10 million for working capital, partly to bankroll new product launches, including the
Cyclone cross-training device.
ValueVision is the third-largest home shopping service. But
with just 12 million full-time-equivalent cable subscribers and $159 million in revenue
last year, it is well behind Home Shopping Network and QVC.
Given channel constraints and the relationships that HSN
and QVC have with powerful MSOs such as Tele-Communications Inc. and Comcast Corp., it
makes more sense for ValueVision to plow cash into other business lines, Riely said. In
addition, ValueVision has been selling off small television stations to Paxson
Communications Corp. and others to take advantage of very high sale values -- thus cutting
into must-carry distribution on cable systems.
ValueVision chairman and CEO Robert Johander will serve as
interim CEO, but ValueVision intends to find another CEO. Riely said ValueVision should be
able to attract better candidates after the merger.
