Tuesday, September 16, 2008

ShopNBC Sinks as Wall Street Wavers

Home Shopping Channels aren't immune to the collapse of Wall Street ... sorry, small adjustment on Wall Street (whatever!)

ShopNBC has been in the toilet for years, but after a string of stupid decisions, they have finally decided to sell the company. The problem? Who would want to buy the struggling shopping channel???

Do you think QVC or HSN should buy in this kind of economic time? Of course, QVC owns quite a bit of HSN already, so that would be quite the home shopping monopoly--like getting all the railroads in Monopoly!

According to TradingMarkets.com, ValueVision Media Inc., the long-troubled operator of the ShopNBC cable TV channel and website, said Thursday that it is considering selling the company.

The move comes less than a month after the Eden Prairie company felt the wrath of shareholders because of the firing of its CEO and depressed quarterly earnings. ValueVision has struggled with slow sales and a high rate of product returns, and its ShopNBC cable channel ranks third, far behind competitors QVC and HSN.

CEO John Buck said Thursday that ValueVision would not necessarily be sold, and that other possibilities included a partnership, acquisition or private equity investment.

But others said an outcome other than a sale was unlikely.

"I think the takeaway here is that the company is exploring a sale," said Bob Evans, an analyst at Craig-Hallum Capital Group in Minneapolis. "I'm not surprised. I had thought it might happen earlier."

The 1,100-employee company has 800 workers in Eden Prairie, where it has five TV studios, website operations and a warehouse fulfillment center in addition to its corporate offices.

Investors' anxieties were raised last month -- with some calling for the company to be sold -- when it switched CEOs for the second time this year, ousting Rene Aiu after just five months on the job.

At the same time, ValueVision reported that second-quarter sales had fallen by 25 percent and that losses had tripled from a year ago.

Buck said the company, which hasn't posted an annual profit since 2001, was pressured by its public stockholders to consider its options. Public shareholders own 70 percent of the company; the other 30 percent is owned by General Electric and NBC Universal.

"They have a right to be upset, and we were sensitive to it," Buck said. "But I don't think we waited too long to look around at our options."

The move to hire an investment banker had been debated by the board over the past few months "given the current market value of the company and the need to find a way to significantly increase it," he said.

At Thursday's closing price of $2.38 per share, up a little more than 6 percent, the company's market capitalization was just less than $80 million. The stock rose 2 cents more in after-hours trading.

ShopNBC might be attractive to another company, because its assets exceed its market value, Buck said.

"Our balance sheet is debt-free, we've got $75 million to $80 million in cash, we've got a Boston TV station that's worth $34 million and we've got our Eden Prairie headquarters and distribution center," he said.

The most frequently mentioned potential deals involve QVC and HSN, as well as some private investment companies. But Buck said the company had not been approached by any of them.

Asked whether a competitor might want to buy ShopNBC to shut it down -- thus eliminating a player from the shopping-channel market -- Buck said, "I don't think that is a realistic possibility."

One of ShopNBC's problems is its position at the high end of the market. Its merchandise, primarily jewelry, attracts a smaller group of potential customers than rivals QVC and HSN. ShopNBC's average selling price is in the $200 range (the firm says it sells "little luxuries and fashion must-haves"), while its rivals have average selling prices in the $40 to $60 range.

That positioning proved to be a problem when the national economy declined.

"Higher-end retailers are hit harder," Buck said.

ShopNBC also pays a higher percentage of its revenue in fees to cable and satellite TV companies. ShopNBC pays about 18 percent of revenue to its cable and satellite partners for distribution of its channel, compared with about 5 percent for QVC and about 9 percent for HSN, Buck said. But he said ShopNBC's decision to offer higher-cost merchandise was not dictated by its higher distribution costs.

QVC and HSN both have greater reach with their cable and satellite TV channels, which are available in about 90 million homes compared with 70 million for ShopNBC, Buck said.

ValueVision said a committee of outside directors would review the firm's strategic alternatives; committee members will include George Vandeman, who will serve as chairman, Robert Korkowski and a third outside director to be named to the board. Piper Jaffray has been hired as a financial adviser.

Buck said he expected that ShopNBC will know within 90 days "what's out there in the market, what the interest level is." Even though ShopNBC is in the midst of renegotiating about 65 percent of its cable and satellite TV distribution deals, with a deadline of Dec. 31, that will not affect the review of its future, he said.

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