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QVC to Merge with Home Shopping Network: Will Amazon React?

On Thursday, TV shopping behemoth QVC announced plans to acquire fellow home-shopping platform Home Shopping Network HSNI in an all-stock deal valued at $2.1 billion.

Liberty Interactive Corp. QVCA, which is the parent company of QVC and already owns 38% of HSN, will purchase the 62% of the network that it didn’t already own. The newly combined company will have $14 billion in revenue and 23 million customers around the world, according to QVC CEO Michael George.

Under the terms of the deal, Englewood, Colorado-based Liberty will issue 53.4 million shares of QVC Series A common stock to HSN shareholders, which the company said is the equivalent of paying $40.36 per share for HSN. This represents a 29% premium to the stock. Shares of the Home Shopping Network are up about 26% in afternoon trading—the stock was up 33% earlier today—while QVCA stock is currently down about 1.72%.

"This was a time where we felt like we could acquire the company on terms that would be attractive to the shareholders of QVC," said George on CNBC’s “Squawk on the Street.” "For folks just starting out with an entrepreneurial idea to have access to this combined HSN-QVC platform, the opportunities are extraordinary," he continued.

The new company will also result in the third-largest online site, behind only Amazon.com AMZN and Walmart’s WMT e-commerce business. Both QVC and HSN have recognizable brands in each of their portfolios; HSN owns home furnishings vendor Frontgate and apparel and home decor retailer Garnet Hill, while QVC has apparel seller Zulily and online invitation website Evite under its umbrella.

George said QVC-HSN will generate $7.5 billion in online sales and $4.7 billion in mobile sales, projections its newfound competitors should not take lightly. So how will Amazon react? Will the company just bruch it aside or make another market-shattering decision?

Well, one thing to consider is that both QVC and HSN had been dealing with sluggish sales because of Amazon’s dominance in e-commerce and online shopping. While both companies are known for their TV shopping platforms, they both see significant revenues from digital sales. For instance, HSN not gets half of its sales form e-commerce, and it features over 50,000 products on its website in addition to broadcasting to more than 90 million households.

But as each tried to beef up their digital presence, Amazon—and most recently, Walmart—became too much of a hurdle to overcome on their own. Rod Little, HSN’s CFO and interim head, said in a conference call on Thursday to discuss the deal,“it has been a tough period…We are not happy with the performance. It's part of why we are here today, I guess."

Realistically, Amazon will keep trying to undermine Walmart, and vice versa, before it seriously takes on the newly formed QVC-HSN.

The deal is expected to close in the fourth quarter.

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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
 
Liberty Interactive Corporation (QVCA): Free Stock Analysis Report
 
Wal-Mart Stores, Inc. (WMT): Free Stock Analysis Report
 
HSN, Inc. (HSNI): Free Stock Analysis Report
 
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