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QVC buys HSN in a move to challenge Amazon

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NEW YORK -- QVC and Home Shopping Network, two of the best-known home-shopping hubs, are merging in a $2.6 billion deal as they try to retain consumers who are rapidly shifting to internet-based retail.

Liberty Interactive (QVCA), which owns QVC and already owns 38 percent of HSN, will buy the rest of Home Shopping Network for about $2.6 billion in a stock deal. That would make the combined network the third-biggest in the U.S. by sales, behind Amazon (AMZN) and Walmart (WMT). 

The move is a play to compete with the two largest online retailers at a time that home-shopping network sales are dropping. According to eMarketer, sales in that industry have fallen 2.9 percent in the U.S. and 2.3 percent globally between 2011 and 2016. Amazon, which has been growing aggressively, dominates the online shopping space.

"They're a little bit late to the dance of the online arena, but are catching up now," said Craig Johnson, president of Customer Growth Partners, a retail research consulting firm.  

A key focus will have to be offering unique, exclusive products at a compelling value. Otherwise, he said, competitors including Amazon and Walmart will be tough to beat online.

"It has been a tough period," acknowledged Rod Little, HSN's chief financial officer and interim head, in a conference call on Thursday to discuss the deal. "We are not happy with the performance. It's part of why we are here today, I guess."

Liberty, which has owned a stake in HSN since 2009, said buying the rest of the company will boost the merged company's ecommerce capabilities, cut costs and offer marketing opportunities, among other benefits. 

"The increased scale of this combination will allow us to more effectively compete, we think, in a changing and evolving retail and digital environment," Liberty CEO Greg Maffei said in the call. 

The buyout comes months after Mindy Grossman left as CEO of HSN to take the reins of Weight Watchers. Under Grossman, HSN worked to build its ecommerce presence and transform itself into a lifestyle network. It now derives half of its revenue from ecommerce, featuring more than 50,000 products on its website along with broadcasting to more than 90 million households.

Combined, the companies will serve an estimated 23 million customers worldwide and ship more than 320 million packages every year, said Mike George, QVC's president and CEO. QVC is stronger in fashion and beauty, he said, while crediting HSN in areas like electronics, fitness and health.

George said the combined company will generate $7.5 billion in online sales and $4.7 billion in mobile sales.  

"By combining companies, we believe will be able to accelerate innovation, enhance the customer experience, increase customer value and put ourselves in an even stronger position to help shape and lead the nation generation of shopping," George, who will head the merged business, on the call.   

Home Shopping Network's consumer brands include home furnishings vendor Frontgate and home decor and clothing seller Garnet Hill. QVC's properties include apparel seller Zulily and online invitation website Evite.

Liberty, based in Englewood, Colorado, will issue 53.4 million shares of QVC Series A common stock to HSN shareholders. It said Thursday that's the equivalent of paying $40.36 per share for HSN Inc. of St. Petersburg, Florida.

That would be a 29 percent premium to the stock. Shares of HSN surged $11.25, or 36 percent, to open at $42.50 on Thursday  and were trading at $40.15 Friday morning. The

The deal is expected to close in the fourth quarter.

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